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Light Upside Call Spds


Dips Considered Corrective


Trend Signals Remain Bearish

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T-Notes -0-06 at 132-06, 0-03 off worst levels after sliding through Thursday's low. A brief bid was seen on headlines pointing to the apparent continued non-payment of a coupon on one of China Evergrande's US$-denominated bonds that was due Thursday (a reminder there is a 30-day grace period on the coupon payment before a default would be triggered), before the cheapening resumed and fresh session lows were seen. Cash Tsys are little changed to 2.0bp cheaper on the day, with 20s leading the weakness. Fedspeak from Powell, Clarida, Bowman, Mester, George & Bostic is due during NY hours.

  • It has been a heavy return to trade for JGBs, with futures last dealing 29 ticks lower on the day, just above session lows, as the pressure witnessed in the U.S. Tsy space on Thursday spilled over, pushing the contract through initial technical support in the process. 7s represent the weak point on the cash JGB curve, cheapening by ~2.5bp, with shorter dated paper 0.5-1.0bp softer and longer dated paper running ~1.5-2.0bp cheaper. The fact that 7s are leading the cheapening may point to futures driven activity. Meanwhile, 5+-Year swap spreads are generally wider on the day (7s are the exception to rule, given the move in the cash JGB space), suggesting that payside swap flow is aiding the broader cheapening in the cash JGB space. The latest BoJ Rinban ops saw the following cover ratios, which may be adding some light pressure in afternoon dealing: 1- to 3-Year 2.75x (prev. 1.97x), 3- to 5-Year 3.11x (prev. 2.25x), 5- to 10-Year 2.58x (prev. 2.04x), 25+-Year 5.40x (prev. 2.85x).
  • The steepening extended in Aussie Bond trade, with nothing in the way of a fresh, overt catalyst observed. Perhaps lower liquidity owing to the holiday in play in the state of Victoria played a role here, allowing the overnight/early Sydney move to extend. YM -6.0, XM -14.5. There may also be some correlation in play with U.S. Tsys, as T-Notes slipped through Thursday's session low. A quick dive into today's A$1.0bn ACGB Jun '31 auction revealed that the weighted average yield printed 0.47bp through prevailing mids at the time of supply (per Yieldbroker). The cover ratio was comfortably above 4.00x. This represented a solid auction, even in the face of aggressive U.S. Tsy-driven cheapening, with a better entry point building on the support provided by the previously outlined (and well defined) supportive factors that have been in play in recent times.