Early Asia Recovery Unwound

Early Asia-Pac trade saw the core global FI space draw support from continued messaging from ECB President Lagarde re: the need for a gradual removal of accommodation when it comes to altering policy, in addition to some regional demand on the back of Thursday’s U.S. Tsy-driven sell off.

• Later in the Asia session, a fresh round of pressure in the U.S. Tsy & Eurodollar space leaked through into Aussie bonds, with a lack of notable headline flow evident. Most of the initial focus seemed to fall on Goldman Sachs’ altered Fed call (they now look for 7x 25bp rate hikes in ’22 vs. 5x 25bp hikes previously).
• There was also some confusion amongst participants re: the protocol surrounding the regular, scheduled Fed discount rate meeting that is due to be held next week. The fact that the meeting is to be “expedited” was garnering some interest, but after some observation that appears to be the regular protocol (at least in recent times), with core FI markets unwinding some of the pressure after that was cleared up.
• An MNI interview with San Francisco Fed President Daly (’24 voter) saw her play down the need for a 50bp rate hike in March, while Richmond Fed President Barkin (’24 voter) noted that he would need to be “convinced” of the need to do so if he were to support such a move (which he is not conceptually opposed to). This came after St. Louis Fed President Bullard’s hawkish communique on Thursday (calling for 100bp of tightening come the start of July, as well the potential for an inter-meeting hike).
• TYH2 -0-02+ at 125-23, 0-04 off the base of the overnight range (0-05+ off yesterday’s low). Cash Tsys are closed until London hours owing to a Japanese holiday.
• In Australia, YM was -14.0, while XM was -10.5 come the bell, a little off worst levels. The latest round of ACGB supply was smoothly digested. Bills finished 5-25 cheaper through the reds.