Increased Bets Of Deeper RBA Easing Puts The Spotlight On ACGBs

A downtick in e-minis and the bid in the Aussie bond space provided light support for U.S. Tsys in Asia-Pac hours, with T-Notes last +0-02+ at 139-09+, while cash Tsys sit unchanged to 1.9bp richer across the curve, with bull flattening evident. Diminished prospects of pre-election fiscal stimulus, COVID worry in Europe and Sino-U.S. tensions were familiar themes driving the major macro headline flow.

• Aussie bonds were well bid as RBA Governor Lowe failed to play down the prospects of imminent easing, with curve flattening apparent as he alluded to the possibility of the RBA expanding its ACGB purchases to capture a more meaningful chunk of the 5-10 Year zone of the curve (an area untouched since the RBA restarted its ACGB purchases). His language re: labour market and inflation dynamics added to the idea that further easing is imminent, with most of the sell side now looking for a move in September. YM +1.5, XM +8.5.
• JGBs were tight, with futures last +9. Cash trade saw the 3-5 Year zone outperform. The latest round of 5-15.5 Year off-the-run supply was well received.