Core FI Firmer In Asia, But Shy Of Best Levels

Several factors resulted in a risk-off feel at the start of the new trading week: General worry surrounding the deepening of COVID impact/fear across several Asia-Pac economies/nations, most notably Australia. The first point allowed equities to extend lower, building on Friday's negative lead from Wall St. U.S. T-Note futures have breached last week's high, with broader volume in the contract running comfortably above average for this time of day. Lower oil prices in the wake of the latest OPEC+ agreement, which will see the group lift crude output by 400K bpd/month from August with several parties to the deal set to receive new baselines during '22 (although the length of the pact has been extended).

• T-Notes have eased from best levels after several pockets of buying supported the space in early Asia-Pac hours. The contract last deals +0-05 at 133-30 on volume of ~150K. Cash Tsys trade little changed to ~1.5bp richer on the day, with light bull flattening in play.
• There was little in the way of idiosyncracies to note for JGBs, with the broader defensive tone supporting the bulk of the JGB curve. Cash trade saw the major benchmarks richen by as much as ~1.0bp out to 20s years, while paper further out cheapened at the margins. JGB futures built on their overnight gains but faded from best levels (as did U.S. Tsys), last +11 vs. settlement, with the next level of technical resistance (the July 7 high at 152.59) some way off. Longer dated swap spreads are narrower while swaps out to 10-Years have lagged JGBs, as the swap curve has bull flattened.
• Aussie bonds followed the broader theme, with YM +1.5 and XM +4.0, comfortably shy of Sydney highs at typing. From a technical perspective, XM has breached the recent intraday highs, allowing bulls to switch their focus to the 61.8% retracement of the Oct '20 to Feb '21 move lower. Local weekend news flow was almost exclusively focused on the NSW COVID situation, with ~250 business leaders meeting with state Treasury officials to discuss the economic hit of the local COVID outbreak. The weekend also saw the NSW Premier tighten non-essential & construction work restrictions across Greater Sydney, with some tighter movement restrictions also issued across 3 areas of the city. Major local banks have started rolling out support packages for customers as a result. Monday saw the Premier of Victoria confirm that the state's lockdown will be extended, with an announcement coming tomorrow. 2 noted RBA watchers (AFR's Kehoe & WSJ's Glynn) have started to discuss the potential for the RBA to pullback on its tapering decision in recent opinion pieces.