Core FI A Touch Firmer On The Day

The very light overnight bid in U.S. Tsys has been driven by the front end of the curve, with the belly leading, richening by ~1.5bp on the session, while the longer end of the curve is little changed on the day. The only round of major macro headline flow has centred on the Chinese liquidity situation, which saw the PBoC inject CNY1tn of MLF, matching the amount of MLF that was set to roll off in November (this may have supported broader core global FI). TYZ1 last +0-07+ at 130-24+. The space also looked through the latest round of Chinese economic activity data (which was firmer than exp.). Empire manufacturing data presents the highlight of a very limited domestic docket on Monday. Focus is already on the late Monday call between U.S. President Biden & Chinese counterpart Xi, although a White House official has told CNBC that the meeting "is about setting the terms of an effective competition where we are in the position to defend our values and interests and those of our allies and partners." As a result, most see little room for any real positive developments.

• The belly of the JGB curve has outperformed, richening by as much as ~2bp on the back of the softer than expected GDP print (business capex and consumer spending data both disappointed) and broader impulse in the core global FI space. Meanwhile, 20+-Year paper sits flat to 1bp cheaper on the back of issuance worries in the wake of the previously flagged Nikkei report which pointed to the potential for a larger than expected fiscal support package in Japan, resulting in some twist steepening on the curve. Futures +8 as a result of the firmer belly outlined above.
• In addition to the broader bid in the core FI space evident on Monday (perhaps linked to the previously outlined Chinese liquidity dynamic), several desks have pointed to international value hunting as a driver behind the outperformance in ACGBs, with the compression of the Australia/U.S. 10-Year yield spread adding further weight to that argument. Market pricing re: the RBA's rate path remains aggressive vs. the Bank's own forward guidance, while the negative RBA purchase adjusted net ACGB supply dynamic and record levels of excess liquidity in the Australian banking system continue to facilitate demand. YM +6.5 & XM +2.0 at the close, with the 3- to 5-Year zone leading in cash ACGB trade. Note that the RBA's overnight cash rate settled at 0.04% today, after months of printing at 0.03%., potentially on a lack of "traded" activity and expert judgement.