Core FI Regain Poise, RBA Musings Drive ACGBs

The spillover from Wednesday's FOMC monetary policy decision applied a modicum of pressure to core FI in Asia-Pac hours, albeit main contracts clawed back losses later in the session as Omicron worry and Sino-U.S. tensions resurfaced.

• T-Notes recovered from their Asia-Pac session low of 130-11+ and currently trade +0-04 at 130-19, even as U.S. e-mini futures remain marginally in the green. Cash Tsy curve runs a tad flatter, with yields last seen unch. to -1.0bp. Eurodollar futures trade 0.5-3.0 ticks through the reds. Local data highlights on Thursday include industrial output, housing starts, building permits & weekly jobless claims.
• Initial weakness in JGB futures disappeared after the Tokyo lunch break, which resulted in a rebound to a fresh session high of 152.10. The contract last trades at 152.09, 2 ticks above Wednesday's settlement. Cash JGB curve bull flattened at the margin. The MoF sold Y1.1992tn 20-Year JGBs, with lowest bid topping the forecast level, which may have provided some support to the space. JGBs ignored Japanese data, which showed that trade deficit widened in November, albeit exports growth accelerated for the first time since May.
• RBA Gov Lowe outlined three scenarios of terminating bond purchases in 2022, while stressing that any decisions on QE will be unrelated to interest rate action. The Governor suggested that meeting the inflation target is still a "fair way" off, with rate hikes unlikely to materialise next year. This supported ACGBs in early trade, before they plunged on the back of a stellar labour market report released out of Australia, with all key metrics beating expectations. A surge in consumer inflation expectations to near-decade highs helped add fuel to hawkish RBA bets. ACGB yields shot higher in reaction to the jobs data, with 3-year yield gaining the most. Correction ensued, as broader core FI space lost momentum, which leaves cash ACGB yields trading +6.3bp to -1.3bp across a flatter curve. YM sits -8.1 (off lows) & XM -2.0 (near opening levels). Bills trade 2-12 ticks lower through the reds. Worth noting that Australian Treasury predicted a further tightening in the labour market going forward.