Geopolitical Risk Aids Core FI, Short-End ACGBs Face Pressure From Jobs Data, Hawkish RBA Talk

Core FI futures have caught a fresh bid led by U.S. Tsys amid deteriorating geopolitical climate. With Russo-Ukrainian tensions still simmering in the background, North Korea has just dropped a hint that they might ditch a self-imposed moratorium on ICBM & nuclear weapons tests.

• T-Notes climbed to a session high of 127-20 before the rally lost steam, allowing the contract to tick away from best levels. TYH2 changes hands -0-05+ at 127-16 when this is being typed. Eurodollar futures trade 0.5-4.0 ticks through the reds. Cash U.S. Tsy yields last 0.4-1.9bp lower, edging away from session lows, with the curve running flatter. Weekly jobless claims, existing home sales & Philadelphia Fed Business Outlook take focus on the data front, while a 10-year Tsy auction headlines on the supply front.
• Strong labour market data applied some pressure to short-end ACGBs before core FI found poise again, albeit the . Australia's unemployment rate dropped to a 13-year low of 4.2% in December, but it must be added that the data were collected before the sharp increase in Covid-19 cases. Twist flattening remains evident in cash ACGB yield curve, with yields last seen +2.5bp to -0.5bp. YM sits -1.5 & XM +1.0, with bills running unch. to -2 ticks through the reds. Recall that Westpac circulated a note where they brought their RBA rate-hike call forward, which may have provided a further headwind for short-term ACGBs.
• Despite an early dip, JGB futures clawed back some losses and finished the morning session at 150.90, 2 ticks shy of last settlement. Cash JGB yield curve runs slightly steeper.