Early Steepening Holds, Relative Underperformance Extends

ACGBs adjusted cheaper after the Christmas break, softening in lieu of weakness in core global FI markets that came on the back of the latest reopening push in China (with most of the focus on the wind back of international travel restrictions/limitations) and some hawkish ECB speak.

• The space went out just above worst levels, with YM -19.0 & XM -21.5, while wider cash ACGB trade saw 15-21bp of cheapening as the curve bear steepened.
• ACGBs extended their recent run of underperformance vs. their global counterparts, with the AU/U.S. 10-Year yield spread briefly moving out beyond +20bp, before finishing off extremes, albeit still comfortably wider than late Friday levels.
• There wasn’t anything in the way of meaningful domestic/idiosyncratic headline flow.
• The local docket is empty in the time between Christmas and the New Year, which will leave broader macro headlines and spill over from wider cross-market flows at the fore in the coming days.
• Meanwhile, expect volumes and general liquidity to be limited as many participants will take time off between Christmas and NY.