Geopolitical Anxiety Adds Fuel To Bond Rally

Core bond markets received a fillip from continued risk-off flows, as lacklustre Asia-Pac headline flow failed to add much to the existing narrative. Geopolitical frictions frayed nerves amid the lingering risk of a potential Russian military strike on Ukraine, which provoked Western retaliation threats over the recent days. The spectre of aggressive Fed tightening kept appetite for riskier assets in check, while Thursday's weakness in key U.S. stock indices infected their Asia-Pacific peers.

• T-Notes surged to a session high of 128-10, their best level in a week, before stabilising below there. TYH2 changes hands +0-15 at 128-05+ as we type. Eurodollar futures run 1.5-6.5 ticks higher through the reds. Tsys faltered in cash trade, with the belly leading declines. Yields last sit 1.4-3.9bp lower across the curve, with 10-year yield now back below 1.80%. The U.S. economic docket is fairly empty ahead of the weekend, which leaves the main focus on geopolitical matters.
• JGB futures extended gains after a firmer re-open, but trimmed gains after the Tokyo lunch break. JBH2 trades at 150.99, 15 ticks above last settlement and 10 ticks shy of session highs. Cash JGBs tracked moves in U.S. Tsys as the yield curve shifted lower, with belly outperforming. Japanese CPI data failed to elicit any volatility, even as a marginal miss in core inflation underscored the BoJ's message that policy normalisation will not be happening anytime soon. Likewise, there was no reaction to domestic debt supply, with global market impetus in the driving seat.
• Australia's yield curve bull flattened as ACGBs turned their tails in cash Sydney trade. Yields last sit 5.0-9.0bp lower across the curve. Aussie bond futures were in demand, with YM last +8.0 & XM +9.0, both stabilising near session highs. Bills trade unch. to +9 ticks through the reds. The space showed no reaction to a fairly standard issuance slate for next week, the supply of ACGB Apr '25 also came and went.