Core FI On Back Foot, JGBs Shake Off Initial Strength

A lower re-open for T-Notes preluded a further sell-off as trading resumed after 2020 became history, although e-minis struggled to recoup their early dips. T-Notes stabilised around their current levels in the Tokyo afternoon and last trade -0-07 at 137-27+. Cash Tsy curve bear steepened, with yields last seen 0.4-3.3bp cheaper. Eurodollar futures run unch. to -1.0 tick through the reds as we type. The space found itself under a modicum of pressure as participants seemingly focused on the positives re: U.S. coronavirus situation, with Anthony Fauci observing that the national vaccination campaign is picking up speed. U.S. Pres Trump's last-ditch attempts to disrupt the transition process & lingering Sino-U.S. frictions failed to provide much support to the FI space. Construction spending & final Markit M'fing PMI headline the U.S. docket today, with 3-Month & 6-Month Bill supply also due.

• Aussie bonds also faltered, taking their cue from dynamics driving U.S. Tsys. YM last sits -0.5 & XM changes hands -1.0. The latter slid early on, before ticking off lows in afternoon trade. Steepening impetus hit cash ACGB space as well, with yields last seen -0.4bp to +1.7bp across the curve. Bills trade unch. to -1 tick through the reds. Coronavirus matters dominated the local headline flow, after NSW mandated mask-wearing in indoor venues. The final Markit M'fing PMI report confirmed a continued recovery in Dec, albeit at a marginally slower pace than suggested by the flash reading. CoreLogic House Price Index growth accelerated to +0.9% M/M in Dec from +0.7%.
• JGB futures firmed up at the start to the session, after several reports circulated by the Japanese press suggested that the gov't may declare a state of emergency in Tokyo and three neighbouring prefectures as soon as this week. However, the contract wiped out gains into the lunch break and struggled to recover thereafter. It last sits at 151.91, just 1 tick shy of last settlement. Cash JGB yields are marginally mixed, though 40s still outperform. PM Suga held a presser, during which he confirmed that the central gov't considers declaring emergency in Tokyo and surrounding regions. He didn't disclose any details, but some hints trickled through via the local media, as FNN noted that a new state of emergency could last for a month & NHK reported that it would involve more limited restrictions than April's.