Core FI Mixed Overnight, Risk Aplenty On Thursday

TYM2 +0-03 at 126-20+ into European hours, sticking to a 0-06+ range in Asia, while cash Tsys print 1.5-2.5bp richer. Tsys stuck to a narrow band overnight, with a downtick in e-minis eyed, even as Asia-Pac equity indices surged on the back of Wednesday’s developments. Tsys and e-minis were more cautious given U.S. warnings re: the potential for Russian deployment of chemical and/or biological weapons in Ukraine, while the proximity to today’s U.S. CPI print kept most on the sidelines. Flow was headlined by a 10K block roll from a long in the FVJ2 118.00 puts into the FVK2 117.00 puts. The latest ECB monetary policy decision will provide some interest ahead of NY hours. On top of the aforementioned CPI print, the NY session will bring weekly jobless claims data, average hourly earnings and 30-Year Tsy supply. Participants also eye headlines surrounding the face-to-face meeting between the Russian & Ukrainian Foreign Ministers.

• JGB futures were heavy, building on overnight losses as domestic equities surged and the rise in local PPI data topped expectations. The cover ratio crumbled at the latest round of 20-Year JGB supply, printing below 3.00x to hit the lowest level observed at a 20-Year JGB auction since the multi-year low observed back in October. Things were smooth enough on the pricing side, the price tail saw a modest widening, while the low price topped broader dealer expectations (BBG dealer median looked for a low price of 97.35). Market volatility continues to limit demand when it comes to JGB auctions. Not much was observed in the way of a meaningful immediate reaction in JGB futures or cash 20s post-auction, but the soft cover played into the weakness witnessed later in the afternoon, as 20s led the way lower on the curve. Futures were -33 at the close, while cash trade saw yields rise by 1.0-2.5bp across the curve. There wasn’t much in the way of meaningful domestic headline flow, outside of PM Kishida flagging the need for coordinated government strategy when it comes to combatting the well-documented inflationary pressures.
• Aussie bonds futures pulled back from their early peak as we moved through the session, with firmer Melbourne Institute inflation expectations data and Australian PM Morrison calling for an uptick in defence spending helping the direction of travel. That left YM -3.4 & XM -4.8 come settlement, with volume supported by roll activity. There was nothing in the way of notable market reaction when it came to the resignation of RBA Deputy Governor Debelle, with speculation already apparent re: his successor. The Bill strip twist steepened, with the front end helped by lower BBSW fixings (3- & 6-Month tenors).