Core FI Little Changed Overnight

Participants are understandably unwilling to take on risk ahead of Thursday’s U.S. data releases and the Christmas break, with limited headline flow also noted, resulting in limited ranges and volume when it came to Tsy trade in Asia. TYH2 last unch. at 130-23+, operating in a 0-02+ range on ~28K lots, while cash Tsys are ~0.5bp cheaper across the curve. U.S. hours will see the release of the PCE suite, durable goods data, weekly jobless claims, existing home sales and final UoM sentiment readings.

• RTRS sources noted that “Japan plans to issue Y4.2tn of 40-Year JGBS, a 17% increase that comes even as the government plans to cut its bond issuance overall.” The sources noted that the move reflects “solid demand from life insurers at the long end of the yield curve.” The report notes that the increased issuance of 40-Year paper will come via a Y100bn uptick in auction size on a bi-monthly basis, as opposed to more frequent issuance. Elsewhere, the piece pointed to an uptick in 10-Year issuance and a reduction in 2-Year supply. The piece suggested that total JGB issuance for the next FY will be somewhere in the region of Y200tn, down ~Y20tn vs. the current FY. There will also be a modest uptick (~Y600bn) in liquidity enhancement auctions during the next FY. That dynamic, coupled with a soft cover ratio at the latest liquidity enhancement auction covering 15.5- to 39-Year JGBs, promoted some twist steepening of the cash curve, with 20+-Year yields rising by ~1bp. JGB futures showed through their Wednesday/overnight trough in early Tokyo dealing, before recovering some poise. The weakness in the longer end of the curve then applied some pressure, meaning the contract hit the bell -3.
• Aussie bonds oscillated within a tight range, with YM closing -1.0 and XM -0.5. A late, modest bid crept in as NSW confirmed that a mask mandate for indoor public venues will be reintroduced in the state as of tomorrow, along with new density limits in venues.