Core FI Pull Back After Spell Of Early Strength, Soft 2-Year JGB Auction Adds Pressure

T-Notes jumped in early Tokyo trade, moving above Thursday highs as a mild sense of broader caution emerged. The contract peaked at 138-17+ and reversed its course, eventually wiping out earlier gains. It last trades +0-05 at 138-13+. Cash Tsy curve bull flattened upon returning from holidays. Yields last sit 0.4-2.8bp richer, off lows & flats. Eurodollar futures trade unch. to +0.5 tick through the reds. U.S. President Trump held a press conference, noting that he will relinquish power once the Electoral College chooses Joe Biden, but refused to comment on his presence at his successor's inauguration and potential for his renewed presidential bid in future.

• JGB futures edged higher early on, peeking above overnight highs, before turning its tail. The sell-off resumed after lunch, with a soft auction of 2-Year JGBs (underwhelming bid/cover ratio of 3.21x, relatively long tail, low price lower than exp.) adding some fresh pressure. The contract trades at 152.06, 4 ticks shy of last settlement. Cash JGB yields trade mixed, little changed at typing. 20s & 40s lagged early on, after Japanese bond dealers said yesterday that the market could digest more issuance of these tenors. Tokyo CPI report showed continued, faster than exp. deflation. News flow revolved around local coronavirus matters/the third extra budged being drafted by the government, with PM Suga's adviser pointing to the need for a more sizeable stimulus than forecast by bond traders. Looking ahead, the BoJ will release its Dec bond-buying plan later today.
• In Australia, YM -1.0 & XM +1.0, after pulling back. Cash ACGB yields trade -1.3bp to +0.1bp across the flatter curve. Bills last seen unch. to -1 tick through the reds. The AOFM auctioned A$1.5bn worth of ACGB 0.50% 21 Sep '26 and released its weekly issuance slate. The space showed little interest in the latest escalation in Sino-Australian trade spat.