Collateral Shortage Impacts AU Bonds, Tsys Fade From Best Levels

The early Asia Tsy bid has faded, leaving TYH2 +0-06 at 130-24, with cash Tsys dealing 0.5bp richer to 1.0bp cheaper across the major benchmarks, as the curve comes under some light twist steepening pressure. Headline flow remains light, Asia-Pac cash traders have seemingly been willing to sell into the late NY/early Asia 20-Year Tsy auction-inspired strength.

• In Australia, YM & XM finished at best levels, +7.5 & +1.5 respectively. The well-documented collateral shortage is seemingly impacting price action in YM as markets thin out ahead of Christmas, with the early twist steepening giving way to bull steepening. Some spill over from the U.S. Tsy space likely provided the initial impetus for the bid.
• JGB futures nudged higher at the Tokyo re-open, given the recovery from NY lows in U.S. Tsys, before pressure came back in as core fixed income markets softened. This pushed JGB futures below their overnight trough, hitting closing bell -18, a little above worst levels, while cash JGBs sit little changed to 1.5bp cheaper, with the belly leading the weakness, mimicking Tuesday’s developments on the U.S. Tsy curve and reflecting a bit of a futures driven move. Local headline flow has been modest, with stale minutes from the BoJ’s October meeting and familiar speculation re: the government’s GDP exp. & FY22 budget proposals doing the rounds.