Hawks Are Circling, Bonds Retreat

Fed goings-on continue to draw attention, as the choir of policymakers flagging potential for earlier/more aggressive tightening grows. Lael Brainard expressed openness to raising interest rates in March, while the U.S./Asia crossover saw Christopher Waller call three hikes a "good baseline," which could be adjusted in response to inflation dynamics. Separately, the White House confirmed that Pres Biden will nominate Sarah Bloom Raskin to become the Fed's top banking regulator and will pick Lisa Cook and Philip Jefferson to join the Board of Governors.

• T-Notes have lost ground, extending their pullback from Thursday's high of 128-27, with the move likely aided by a spillover from JGBs. TYH2 last trades -0-03+ at 128-19+, hovering just above session lows. Cash Tsy yields sit 1.6-2.2bp higher across the curve, as belly underperforms. Eurodollars trade unch. to -3.0 ticks through the reds. Fed's Williams will address the Council on Foreign Relations today, while key data releases include industrial output, retail sales & flash U. of Mich Sentiment.
• Hawkish musings are doing the rounds in Japan, with participants digesting the latest RTRS source report, noting that "policymakers are debating how soon they can start telegraphing an eventual interest rate hike, which could come even before inflation hits the bank's 2% target." JGB futures retreated after the re-open and last operate at 150.75, 31 ticks shy of Thursday's settlement. Cash JGB yields have pushed higher, with the belly of the curve underperforming. The yield on 5-Year JGBs hit its best levels since Jan 2016, when the BoJ adopted their negative interest rate policy. Note that the next BoJ monetary policy meeting is slated for next Tuesday, with several source reports pointing to a potential for a modest upgrade to the Bank's FY2022 inflation forecast. In the meantime, the MoF will auction 20-Year JGBs later today.
• Aussie bonds have followed the broader market lead, with futures sitting comfortably in negative territory (YM -4.0 & XM -0.5). Cash ACGB curve runs flatter, with yields last seen 0.2-4.7bp higher. Bills run 2-3 ticks lower through the reds. The domestic headline flow has offered little to write home about, with an auction of ACGB Nov '25 & weekly issuance easily digested.