Core FI Under Light Pressure

TYM2 +0-04 at 124-14+ at typing, 0-03 off the base of a 0-10+ Asia range range. The space has meandered through the second half of Asia-Pac dealing, with the Cash Tsy curve seeing some marginal twist flattening around the 20-Year point, as benchmark Tsys run 1.5bp cheaper to 0.5bp richer vs. closing levels. Core fixed income markets drifted away from their early Asia highs. We didn’t see much in the way of major headline flow to drive the move, with e-minis nudging away from worst levels later in the Asia session (the move in e-minis came alongside a bounce in Chinese equities). Perhaps it was a case of some regional participants being a little less concerned re: the previously touted Pentagon worry surrounding the potential for Russia President Putin to make nuclear threats if the Ukraine conflict drags on. The start of the re-opening of factory production in China’s Shenzhen, in addition to subway services (at least across 5 districts that have achieved “COVID zero”), may also have fed into price action. Note that a more cautious BoJ helped the space to find a bit of a base. Friday’s NY session will be headlined by Fedspeak from Barkin, Bowman & Kashkari. The U.S. data slate is slim, with existing home sales due. Elsewhere, U.S. President Biden is set to speak with Chinese counterpart Xi (scheduled for 09:00 Eastern).

• JGBs traded as a broader function of the wider core FI market complex during the Tokyo morning i.e. bid, before fading. The afternoon was stagnant, with a more cautious BoJ (re: the economy) providing nothing in the way of surprises for markets, resulting in some incremental support for the space. JGB futures closed -4, just above the level observed at the end of the morning session, while cash JGBs were -/+0.5bp vs. yesterday’s closing levels late in the Tokyo day. Elsewhere, CPI data was largely in line with expectations, with the BoJ’s preferred core measure running at a meagre +0.6% Y/Y in February. A reminder that headline inflation dynamics are set to be driven by energy price & JPY movements in the coming months. This is the sort of cost push inflation that the BoJ will look through, given relatively limited wage growth & little in the way of demand pull-linked inflation. The BoJ subsequently characterised the uptick in inflation expectations as moderate, with a “clear” increase in inflation deemed likely in the near term owing to energy price dynamics, raw material cost increases and a dissipation of the impact of the reduction in mobile phone charges. There were no meaningful surprises in the text of the release.
• Aussie bonds went out around worst levels of the day, with YM -5.0 and XM -7.0. Longer dated ACGBs were ~8bp cheaper on the day. The weekly AOFM issuance slate failed to provide much impetus for the space, with same holding true for a strong round of pricing at the latest ACGB Apr-26 auction (which was accompanied by a softish cover ratio).