Core FI Off Best Levels In Tight Asia Trade

A softer than expected non-manufacturing PMI out of China saw a contractionary print for the first time since Feb '20 (and was accompanied by a largely in line with exp. manufacturing print) provided some support for T-Notes, although the contract stuck to a thin 0-04+ range in Asia dealing. The contract last deals +0-03 at 133-20, 0-02 off highs, while the major cash Tsy benchmarks trade little changed to ~0.8bp firmer on the day. The PMI data represent the latest round of disappointing economic releases out of China, with worry evident re: the country's growth trajectory and expectations building for increased fiscal support (via an uptick in local government bond issuance) in the coming months. Tuesday's U.S. docket will be headlined by the latest MNI Chicago PMI print and consumer confidence reading.

• A lacklustre Tokyo session saw JGB futures add incrementally to their modest overnight uptick, before some cheapening was witnessed, with the contract last -2. Cash JGB trade has seen 7s outperform, richening by ~1.0bp with the remainder of the curve printing somewhere between little changed and ~0.5bp richer on the day. Speculation surrounding budget requests for next FY and a potential cabinet reshuffle did the rounds. 2-Year JGB supply passed smoothly, especially when you consider the perceptions around a lack of onshore demand, with the cover ratio ticking higher and price tail narrowing vs. the prev. auction. Elsewhere, the low price topped broader dealer exp. (which stood at 100.26, per the BBG dealer poll). Offshore interest likely aided the takedown of today's auction.
• Aussie bond futures stuck to tight ranges, leaving YM +0.5 & XM unch. at typing. Local data was mixed, with private sector credit topping exp., building approvals missing and a slightly narrower than exp. Q2 BoP current a/c surplus observed alongside an as exp. net export contribution to GDP reading (-1.0ppt). The space also looked through the previously flagged Chinese PMI readings and today's NSW COVID case count, which was a little shy of yesterday's record print. Elsewhere on the COVID front, Canberra extended its lockdown through mid-Sep.