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Q1 US Earning Generally Ahead of Forecast

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Core FI markets have been underpinned by the broader risk-off dynamic in the wake of the discovery of a new, aggressive COVID variant in Africa, with TYZ1 sitting at fresh session highs at typing, +0-24+ at 130-19. Cash Tsy trade sees outperformance in the belly, with 5s richening by ~9.0bp. This comes as some of the recent hawkish Fed repricing gets wound out of markets on the COVID news, as Eurodollar futures trade as much as 13.0 ticks higher on the day, with the reds outperforming. This dynamic has allowed the 2-/5-/10-Year butterfly to move back from recent highs (a reminder that the belly is the most susceptible part of the curve when it comes to Fed repricing and speculation surrounding tapering matters), while the 5-/30-Year spread has ticked away from the YtD, post-COVID vol. flats registered on Wednesday. A reminder that U.S. exchanges will observe altered trading hours on Friday, with early closures surrounding the Thanksgiving holiday weekend.

  • JGB futures +16, while cash JGBs have richened by 0.5-2.0bp, with 7s (pointing to a futures-driven bid) and 40s (perhaps on a continued wind back in worry re: issuance requirements to finance the impending fiscal stimulus package) outperforming on the curve. On the issuance front, Uruguay will conduct a 3-/5-/7-/10-/15-Year multi-tranche round of JPY issuance, which is set to price on Thursday 2 Dec, while a multi-tranche round of corporate issuance from Rakuten priced this morning. There hasn't been much attention afforded to news reports pointing to PM Kishida pushing for a 3% rise in corporate wages across Japan, given the broader risk-off dynamic. Participants still await formal details re: the issuance program surrounding the impending fiscal stimulus package, which should cross at some point today.
  • Aussie bond futures shunted higher at the close, registering fresh session highs, potentially pointing to a closing of shorts to limit risk over the weekend. YM finished +11.5, with XM +13.5. There was no reaction in the space to the much firmer than expected domestic retail sales data, with focus squarely on the broader risk-off dynamic. Pricing at the latest round of ACGB Nov-25 supply was firm, with the weighted average yield printing 0.88bp through prevailing mids (per Yieldbroker), although the cover ratio slid below 2.50x. Note that the uptick in issuance size muddies the direct comparability of the latter a little, but looking back at the previous auction results, the 12 Nov auction of the line drew nearly A$3.0bn more in bids, it would seem that the recent issuance dynamic may have limited bidding amounts. AOFM issuance remains brisk next week (vs. recent norms), with a A$300mn dip in ACGB supply vs. this week's levels, while Note issuance remains at A$5bn.