Core FI Bid, As E-Minis Tick Lower, Familiar Risks Eyed

Several pockets of TY futures purchases & a downtick for e-minis have provided Tsys with some support overnight. There was some focus on the COVID situation in the U.S., as well as ongoing Sino-U.S. & Sino-Aussie relations. It could be also be a case of the Asia-Pac region being willing to buy the recent dip in the space again. 10s outperform on the curve, richening by 4.5bp, with T-Notes +0-07+ on the day at 137-27, a little shy of best levels. A note from Credit Suisse's Zoltan Pozsar, pushing back against the idea of year end funding pressure surrounding G-SIB dynamics, triggered a flurry of purchases in the front end of the Eurodollar strip, which runs unchanged to +1.0 through the reds.

• The broader defensive feel to early Asia-Pac trade, coupled with reports suggesting that the Japanese government could step up measures to fight COVID clusters, supported the JGB space, with futures adding 14 ticks to settlement levels as bulls force a test of 152.00. Cash trade has seen modest richening across the curve, although the super-long end underperformed, even with receiving in that zone of the swaps curve, resulting in longer dated swap spread tightening. There was a slide in the cover ratio at the latest 5-Year JGB auction as the recent cheapening of the line didn't do enough to entice solid demand, given little in the way of clear relative plays (as outlined earlier), with clearing yields a touch richer than the previous auction. Pricing was firm, with the low price coming in just above dealer expectations and no price tail.
• Aussie bonds wobbled early on, despite the RBA stepping in to reinforce its 3-Year ACGB yield target, with A$2.0bn worth of purchases, which came in addition to the already scheduled purchase of A$2.0bn of 4-12 Year ACGBs. Long positioning and jitters surrounding trans-Tasman developments at the RBNZ were seemingly the drivers here. The space then regained some poise with little else to really attribute the resumption of the bid to, outside of the broader bid in core global FI/downtick in the equity space, and the aforementioned headline flow. YM +1.0, XM +8.5, as the cash curve bull flattens and swap spreads widen from 5 years out.