Flow Dominates Limited Tsy Session, JGB Futures Push Lower In Afternoon

U.S. Tsys stuck to a narrow range in Asia-Pac hours, with a lack of notable headline flow evident. TYH2 +0-02+ at 128-07 ahead of European trade, with cash Tsys running 1.5bp cheaper to 1.0bp richer across the curve, twist flattening in the process. Flow was headlined by a block buy of the TYH2 127.00 puts (+15.0K), with a mis-weighted FV/WN block flattener (-5,275/+750) also observed. Fed Chair Powell’s latest testimony will draw most of the event interest on Tuesday. The pre-release of the initial address saw Powell note that he stands ready to prevent elevated inflation from becoming entrenched. "The economy is expanding at its fastest pace in many years, and the labour market is strong," he added. Fedspeak from George and Mester will supplement Powell during NY hours. 3-Year Tsy supply is also due on Tuesday. Meanwhile, NFIB small biz optimism headlines a thin NY economic data docket.

• JGB futures struggled in afternoon trade, after the space saw a bid develop during the Tokyo morning, as participants returned from the elongated Tokyo weekend. The contract finished -21. There wasn't much in the way of obvious catalysts to trigger such a move. A warning from Nomura re: the potential for further futures selling from foreign CTA-like accounts owing to long positioning, inflation breakeven dynamics & speculation that the BoJ may lift its immediate inflation forecasts did the rounds and may explain the weakness. 10-Year JGB yields hit the highest level since early ’21 on the back of the move. A multi-tranche JPY offering from Berkshire Hathaway headlined on the issuance front.
• Aussie bonds followed the broader ebb and flow, leaving YM +2.0 and XM +2.5 at the close. Local data had no impact on the space, with firmer than expected retail sales for November likely driven by the re-opening from COVID lockdowns/supply crunch fears. Remember that real-time data pointing to a slowdown in retail activity in recent weeks has been widely disseminated. A$ IG issuance continued to tick over.