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Core FI Bid On U.S. Fiscal Woes & Omicron Worry

BONDS

A combination of deeper omicron worry (centring on Europe, in the wake of a lockdown in the Netherlands & the UK, as speculation mounts re: circuit breaker restrictions after Christmas) and U.S. Democratic Senator Manchin’s move to effectively block President Biden’s Build Back Better scheme weighed on risk appetite in Asia, supporting core FI markets. Note that the PBoC’s latest 1-Year LPR fixing moved 5bp lower, surprising most economists. There isn’t anything in the way of notable tier 1 risk events slated during the remainder of Monday’s session, which will leave headlines & broader risk appetite at the fore.

  • TYH2 is threatening a clean break above technical resistance at the Dec 3 high/bull trigger (131-16) into European hours, trading +0-11+ at on the day at typing, printing 131-17. Cash Tsys run 3.0-4.5bp richer, with 5s leading as the wings of the curve lag. Eurodollar futures have seen some bull flattening, running flat to 6.0bp firmer through the reds.
  • JGB futures unwound their overnight losses, finishing Tokyo trade +13. Cash trade saw 7s lead the rally, with the major benchmarks running 0.5-1.5bp richer on the day. BoJ Governor Kuroda failed to introduce any new points of discussion in his latest address to parliament (stressing that now is not the time to normalise policy, pointing to outcome-based monetary policy re: inflation, as opposed to a date-based process).
  • Aussie bond futures finished just shy of best levels, with YM +4.0 & +4.5. Cash ACGB trade saw most of the major benchmarks richen by 4-5bp. EFPs pushed wider on the day, with 3s leading the way. Bills were 2-4 firmer through the reds. Australian PM Morrison has called a snap National Cabinet meeting for Tuesday, with focus on the dissemination of up-to-date information on Omicron. It would seem that Morrison has played down the importance of the meeting. Note that various state & federal level officials sounded relatively relaxed re: the matter over the weekend, given the onset of the summer season & high vaccination rate in place in Australia.
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

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