Core FI Back From Early Highs, Asia Subjected To Broader Risk Swings

Core FI markets initially drew support from weekend developments surrounding the Russia-Ukraine situation, with continued warnings from the U.S. re: the threat of an imminent Russian invasion of Ukraine (which could target multiple cities if it materialises, according to BBG sources) and the now indefinite stay of Russian troops in Belarus front and centre. The broader risk picture then became more constructive as we learnt that U.S. President Biden and Russian President Putin have struck an agreement in-principle re: a meeting, although that is contingent on no Russian invasion of Ukraine (it would seem that Thursday’s Blinken-Lavrov meeting will be used to flesh out the details of the Presidential level talks). Still, core FI traded lower on the back of the Biden-Putin meeting news.

• TYH2 has been a little unwilling to probe meaningfully below neutral levels, with markets perhaps a little sceptical ahead of the Blinken-Lavrov meeting. TYH2 last dealing at 126-19+, -0-02 on the day, operating in a 126-18+ to 126-29+ range thus far, on over 145K lots. Note that the details of the White House read out re: the potential Biden-Putin meeting did not withdraw the idea that a Russian invasion of Ukraine is in the offing, which may have limited the downward impetus fleshed out above. A reminder that Cash Tsys will remain closed on Monday, while Tsy futures will be subjected to curtailed trading hours owing to the observance of the President’s Day holiday in the U.S.
• JGB futures followed the broader gyrations in risk appetite, with the Ukraine situation front and centre. Futures built on their overnight gains in early Tokyo dealing, before fading on the back of the Biden-Putin summit agreement in principle, hitting the bell +11. The long end of the curve led the bid for a second consecutive day, with participants seemingly happy to take the lead of Friday’s U.S. Tsy market bull flattening. That left the major JGB benchmarks little changed to 5.5bp richer late in the Tokyo day. A reminder that Friday’s Tokyo session saw some dip their toe into the longer end of the JGB curve after the notable steepening witnessed in recent weeks, resulting in bull flattening. This came after the 1.0% level held in 30-Year JGB yields. BoJ Rinban operations covering 1- to 10-Year JGBs may have offered some modest support, although a lack of movement in offer/cover ratios point to a lack of meaningful impact.
• Offshore dynamics remain front and centre for the Aussie bond space, with futures drifting lower into the Sydney bell. That left YM +2.0 & XM +3.0, with a chunk of the overnight/early Sydney gains pared. There hasn’t been much of note on the local news front, while the latest round of ACGB supply wasn’t a catalyst for wider market activity.