Initial Impetus Evaporates, ACGB Auction Attracts Strong Demand

Initial demand for core FI futures petered out, even as regional news flow did not add much new to the familiar macro-narrative. Participants prepared for an eventful NY session, including the start to the earnings season. China's monthly trade data provoked a muted market response, with the nation's trade surplus topping expectations on the back of stronger than expected exports growth.

• T-Notes rejected resistance from yesterday's high of 131-07+ and pulled back, swinging into a loss. The contract last changes hands -0-01 at 131-03+, hovering just above the session low of 131-02+. Cash Tsy yields trade unch. to +0.8bp, curve runs a tad flatter. Eurodollar futures last seen unch. to +0.5 tick through the reds. There is an eventful NY session ahead, with the FOMC due to release the minutes from their latest monetary policy meeting after the publication of U.S. CPI data, while policymaker Brainard will speak at a Fed Listens event in Oklahoma. On the supply front, focus turns to 30-Year debt auction.
• JGB futures reopened on a firmer footing but eased off gradually into the Tokyo lunch break. The contract last trades at 151.29, 4 ticks above previous settlement levels. Cash JGB yields sit lower across the curve, with the super-long end outperforming. The annual growth in Japan's core machine orders was faster than forecast, but came alongside an unexpected monthly contraction. The BoJ offered to buy 1-3 & 5-10 Year JGBs as part of their Rinban ops.
• The auction of ACGB May '32 attracted strong demand, drawing the highest bid/cover ratio (5.90x) since that tenor became available. Cash 10-Year ACGBs outperformed after the auction as other tenors ticked away from highs on the back of broader market impetus. Cash ACGB curve still runs flatter at typing, with yields last seen unch. to -3.8bp. Futures remain elevated, YM last +2.0 & XM +3.5. Bills run unch. to +3 ticks through the reds. Comments from Australian Treasurer Frydenberg were ignored, as the official said he expects a deeper Q3 GDP contraction than projected before, adding that it should be followed by a strong rebound.