Core FI Firms In Asia

The combination of Western sanctions on the Russian central bank (a move to try and limit the deployability of Russia’s FX reserves), partial removal of Russian banks from the SWIFT banking communication system and Russian President Putin’s move to raise the alert level of the country’s nuclear deterrent forces to high supported core fixed income markets in Asia. On top of that, the Russian military operation in Ukraine continued over the weekend. Note that Ukrainian President Zelensky has agreed to send a team to conduct talks with Russia near the Ukrainian border with Belarus, but the Ukrainian leadership remain sceptical re: the nature of the talks (the President will remain in Kyiv as a result).

• TYM2 continues to operate comfortably shy of best levels, last +0-25+ at 126-31 (operating on ~310K lots, only 15K of that is roll ahead of today’s first notice), while the front end of the cash Tsy curve leads the bid, with the major benchmarks 5.0-8.5bp richer on the session. The odds of a 50bp rate hike in the Fed’s March meeting have evaporated in the OIS space, which is supporting the front end of the Tsy curve. In the STIR space, note that EDH2 is actually lower on the day, -4.00, while the remainder of the whites and reds trade 6.0-12.0bp richer, with all of the contracts back from their early highs. FRA-OIS is wider. Some focus has fallen on the latest note from Credit Suisse’s Pozsar, who flagged the need for central banks to re-open USD swap lines in the wake of the SWIFT limitations placed on Russia, which has likely driven the FRA-OIS widening and EDH2 selling.
• JGBs firmed during Tokyo dealing, in pretty directional trade. That left futures +27 at the bell, a touch shy of best levels, while cash JGBs were 1-4bp richer, bull flattening. Swap spreads widened across the curve. In terms of local data, both industrial production and retail sales provided misses in M/M terms. Our policy team has subsequently flagged its understanding that “downside risks to the economy will be heightened at the March Bank of Japan policy meeting amid the latest tepid economic data and geopolitical risks driving up energy costs that could lead the central bank to issue a rare statement before the end of the fiscal year on maintaining financial market stability.”
• Aussie bond futures squeezed higher into the bell, led by YM as the 3-Year EFP metric jumped. YM was +13.0 with XM +9.5 come the close, with the former tapping fresh session highs late in the day. There wasn’t much to report in local news flow. The latest ACGB Nov-25 tender saw prices print comfortably through mid, although the cover ratio slipped below 3.00x. Bills were unchanged to +13 through the reds. Tomorrow’s RBA decision isn’t expected to be a gamechanger, given the lack of upside surprise in last week’s Q4 WPI print. No changes are expected when it comes to monetary policy settings. Note that the IB strip fully prices a 15bp hike come the end of the Bank’s July meeting.