Core FI Markets Cheapen Further In Asia

U.S. Tsys edged lower in Asia, with regional reaction to Thursday’s price action & related-JGB weakness applying pressure, keeping a lid on any buying interest at the same time. TYH2 last -0-05 at 127-15+, 0-01 off the base of a 0-06 range, while cash Tsys run ~1.0-2.5bp cheaper across the curve, bear flattening. The latest labour market report headlines the U.S. docket on Friday (BBG median looks for +125K in headline NFPs, current BBG whisper number is +22K, although there is plenty of speculation re: the potential for a negative print).

• Japanese participants pressured JGBs lower from the off, reacting to Thursday’s core FI market dynamic. This saw JGB futures print through their ’21 low, with that contract -32 come the bell, back from worst levels of the day. Meanwhile, 5-Year JGB yields topped 0% and 10-Year yields printed 0.20% for the first time since ‘16, with the latter moving closer to the peak of the BoJ’s permitted -/+0.25% trading range. Cash JGBs sit 0.5-3.5-bp cheaper across the curve, with 7s leading the weakness, pointing to the futures-driven nature of the move. Elsewhere, the majority of the major swap spreads widened, applying a further source of pressure to the space.
• Aussie bonds were also subjected to the aforementioned major sources of pressure, which pushed bond futures through their overnight session lows, leaving YM -8.0 & XM -9.0 at the bell. Meanwhile, the Bill strip bear steepened, ending 2-11 ticks lower on the day. Next week’s AOFM issuance slate includes an extra A$500mn of nominal ACGB issuance vs. the “standard” A$2.0bn of generic weekly ACGB supply (a reminder that next week represents the final week of RBA ACGB purchases under its QE scheme).