Core FI Mixed Overnight, But Off Worst Levels

Early modest cheapening of core FI markets unwound as circular drivers came to the fore during the early round of Asia-Pac trade. This saw Asia-Pac $ IG bonds under widening pressure and regional tech proxies in the equity space sold heavily again, resulting in the DXY testing resistance and a solid bid in core global FI. Pressure was alleviated as Chinese equities rallied sharply from lows, resulting in desks and then major newswires suggesting that the Chinese "national team" had stepped in to quell the recent losses in the domestic equity markets. Still, broader core fixed income markets remained underpinned, even as regional equity indices recovered from worst levels.

• This allowed Tsys to bull flatten, with 30s sitting ~3.0bp firmer on the day, while T-Notes print +0-05 at 132-01, 0-02+ off best levels. In terms of headline flow we saw the following:
• TYJ1 134.00 puts saw 1,875 lots sold on block, likely profit taking based on previously identified regional trading patterns.
• A FV/TY flattener (7,435 lots vs. 4,825 lots)
• TYJ1 130.00 puts saw a 5,625 lot block buyer.
• JGB futures recovered from worst levels on the aforementioned dynamic. There was little impact from a sub-par round of 5-Year JGB supply, with the recent round of core global FI vol. and questions surrounding the BoJ's ongoing monetary policy review likely dissuading aggressive bidding. 10s and 20s underperform in cash trade, with swap spreads running narrower across most of the curve. JGB futures last print 14 ticks below yesterday's settlement levels.
• Aussie bonds also managed to unwind most of the overnight/early Sydney pressure, even with a relatively heavy round of A$ corporate issuance outlined (targeting the belly of the curve). Still, the long end saw some lingering underperformance given the fairly linear recovery in the space, leaving YM +1.1, XM -1.5 at typing.