Core FI Coils In Asia

T-Notes have worked away from lows in Asia-Pac hours, with the gyrations in Chinese equities at the fore once again. Note that state-media took a much more active approach in trying to placate fears re: systemic risks causes by the recent sell off in Chinese equities ahead of the open of Chinese markets. The contract last trades -0-01 at 134-14, 0-04+ off lows, sticking to a 0-05 range overnight. Cash Tsys have seen some modest twist flattening and print between -/+0.5bp across the curve. There has been some light demand for TY upside exposure via ~4.0K of screen lifts in the TYU1 135.50 calls. The latest FOMC monetary policy decision will headline the docket during NY hours. The FOMC will use the July meeting to debate its strategy to taper asset purchases (including timing, pace, and composition). The December FOMC looks like the most likely meeting for a formal announcement. The risks to the July Statement lean hawkish, but the mood could swiftly change with Powell delivering a relatively dovish press conference. Moves in yields since the June FOMC suggest increasing market concerns over the growth outlook, but it's unlikely this will persuade the Fed to change course at this stage.

• Tuesday's bid in U.S. Tsys supported the JGB space during Tokyo trade, as did the downtick in local equity markets. Futures were last +6 vs. settlemen, operating in a narrow trading band within the confines of the overnight range. Cash JGB trade has seen the major benchmarks firm by 0.5-1.5bp, with the super-long end outperforming. A quick look at the results of the latest BoJ Rinban operations (covering 3- to 10-Year JGBs) revealed steady to slightly lower offer/cover ratios when compared to prev. ops covering the respective buckets. Elsewhere, local news flow saw confirmation that Chiba, Saitama & Kanagawa are formally seeking the declaration of a state of emergency re: COVID, while Economy Minister Nishimura warned of a further uptick in COVID cases as we move through this week.
• Aussie bond futures have nudged higher on the back of the largely in line with expected Australian Q2 CPI data and bid in U.S. Tsys. Note that the headline CPI readings provided 0.1ppt beats vs. expectations for both the Q/Q and Y/Y readings, which is minimal in the current environment. The trimmed mean and weighted median readings met the broader consensus. These readings aren't seen as gamechangers for the RBA, given the exp. for transitory headline inflation and continued restrained core inflation prints. NSW provided another uptick in its daily COVID case count, with the Sydney lockdown extended through August 28 (meeting exp.). Fresh fiscal support packages for NSW employees & Victorian businesses impacted by COVID have been deployed.