Hong Kong & Chinese Equity Weakness Allows Core FI To Move Off Lows

Weakness in Hong Kong & Chinese equities (with some starting to question the scope for meaningful easing from the PBoC after stickier than expected Chinese PPI data given the prospect of notably higher commodity prices starting to feed into the dataset imminently) provided some counter to early core fixed income weakness that came on the back of the U.S. putting the coolers of any talk of Polish airforce planes being stationed at one of its German bases (although talks between the two are ongoing, perhaps linked to the stationing of patriot missiles in Poland).

• TYM2 +0-05 at 127-10, while cash Tsys run little changed across the curve. There wasn’t much in the way of wider headline flow to observe in Asia, with a fairly contained 0-08+ range in play in TYM2 on volume of ~85K (paltry by recent Asia-Pac session standards).
• JGB futures consolidated the bulk of their overnight losses but rebounded off of worst levels to close -15. The rebound in futures came alongside a rally in the longer end of the JGB curve, which reversed the early steepening theme (we didn’t see a clear catalyst for this move). Cash JGBs sit little changed to 1.5bp cheaper out to 10s, with 7s underperforming, linked to the weakness in futures. Further out, 20+-Year paper was 1.5-2.5bp richer, with 40s leading.
• Aussie bonds looked through RBA Governor Lowe’s embedding of further optionality in lift off deliberations, with some of the phrasing deployed by Lowe pointing to upside risks in inflation, in addition to no plan when it comes to the timing of the first hike (when questioned on potential inflation scenarios). YM was -7.8 at the bell, ticking lower into the close, while XM was -8.7. IRH2 was marginally higher, while the remainder of the IR strip softened.