Chinese Equity Weakness Results In Bid In Core FI

Dip buying has kicked into U.S. Tsys after some initial weakness in early Asia-Pac trade, with Chinese equity markets on the defensive as concerns surrounding the well-documented headwinds for Chinese economic activity weigh on mainland and Hong Kong equity indices ahead of the week-long Chinese holiday, which gets underway on Friday. The earlier disclosed liquidation of some of Evergrande's private shareholdings is providing a relief rally for the name, although questions remain whether the move will provide much in the way of meaningful medium-term reprieve for the firm (as we discussed earlier). T-Notes last +0-02 at 131-17, a little shy of their peak, running on ~180K volume. Cash Tsys now sit little changed to 1.0bp richer across the curve, with the belly leading the rally. A raft of Fedspeak headlines Wednesday's NY docket.

• JGBs firmed, with participants buying the latest leg of the recent dip. JGB futures unwound their overnight losses and more, last +5, while 10s led the bid in the cash space. Longer dated swap receiving has seemingly helped the space to firm/curve to flatten, with markets perhaps a little cautious ahead of the LDP leadership election given the previously outlined swing in the betting markets in favour of Kishida in light of the previously outlined Kishida-Takaichi pact. A heavy session for the Nikkei 225 is also providing support. The latest round of BoJ Rinban operations, covering 3- to 10-Year JGBs, revealed some slight moderations in offer/cover ratios vs. prev. ops in the respective buckets.
• The broader risk backdrop, outlined elsewhere, has allowed futures to retrace from worst levels, with YM unch. and XM -1.5 at typing. The Council of Financial Regulators noted that "over the next couple of months, APRA plans to publish an information paper on its framework for implementing macroprudential policy." This may have provided some extra pressure to the space in early Sydney dealing, before the bounce from lows on the broader risk tone. The cash ACGB curve has twist steepened around the 5-Year point, with the longer end running ~3bp cheaper on the day at typing. The spill over from Tuesday's move in U.S. Tsys is keeping the 5+-Year zone of the curve underwater. The Australia/U.S. 10-Year yield spread continues to hover around the -5bp mark, with a slight widening bias in play today