Core FI Mixed In Asia

T-Notes still operating within the confines of a narrow 0-04+ range, last +0-02+ at 133-20, sticking within the upper echelons of Tuesday's range but off of late NY highs, with cash Tsys bear steepening as 30s cheapen by ~1.5bp. The modest pressure comes against the backdrop of an uptick in both e-minis and the major Asia-Pac equity indices, which are likely drawing some support from the previously flagged adjustment to the Biden administration's COVID vaccination timeline guidance and suggestions from the analytic community re: the potential for the PBoC to conduct a targeted RRR cut in March.

• The upward momentum evident in JGB futures on Monday and Tuesday (that some have linked to CTA driven short covering flows, as flagged earlier) waned during the Tokyo morning, with the contract last dealing little changed, while the JGB cash curve twist flattens. The longer end of the swap curve has been subjected to some receiving flow during the afternoon, although swap spreads are still wider across most of the curve. BoJ's Kataoka, a prominent dovish dissenter, deployed his usual narrative, suggesting the BoJ should lower short- and long-term rates by actively purchasing JGBs. Elsewhere, speculation re: the potential extension of the Tokyo area's COVID state of emergency continues to do the rounds, while some have suggested that an announcement could be made as soon as tomorrow.
• The Aussie bond space was quick to retrace its GDP-inspired downtick. Ahead of the release we noted that the market's response function was likely asymmetric with a downside surprise having the potential to create more of a sustained reaction than the upside surprise that was seen (owing to the recent rounds of better than expected data). The market has traded in a sidewards manner since recovering form worst levels. YM -0.5, XM +3.0 at typing, with the curve flattening maintained. The 10-/12-Year sector outperforms in cash trade.