Initial Selling Pressure Peters Out, Risk Aversion Takes Hold

Initial headwinds for core FI dissipated later in the session, giving the space some reprieve. The return of a defensive mood music likely played a role here, as concerns over Omicron, geopolitics and the implications of global monetary policy tightening resurfaced.

• Following an early sell-off to a session low of 130-30+, T-Notes clawed back losses and last trade +0-00+ at 130-03+. Their recovery coincided with a pullback in U.S. e-mini futures, which entered negative territory. Cash Tsy curve flattened at the margin, with yields sitting up to 1.0bp higher. Eurodollars last seen up to half a tick either side of neutral levels. A speech on the economic outlook from Fed's Waller will take focus in the U.S. amid an empty data docket.
• JGB futures sold off as trading re-opened in Tokyo before stabilising into the lunch break. The contract meandered after the BoJ announced their monetary policy decision and last deals at 152.14, 2 ticks above previous settlement. Cash JGB yields are mostly lower, by narrow margins. The BoJ kept their core policy settings unchanged but implemented tweaks to emergency Covid-19 support programmes. The central bank extended the duration of a special aid scheme targeting smaller companies, while pledging to slow down purchases of corporate bonds and commercial paper from Apr '22. Elsewhere, there was little market follow-through from press reports noting that the gov't is preparing to compile a budget in the high Y107tn range (NHK) and is set to keep JGB issuance in the Y30tn range (Sankei).
• Cash ACGB curve reversed some of yesterday's steepening, with yields last seen -0.2bp to +6.2bp across the flattened curve. The initial rise in yields lost steam later in the session, albeit they refused to give away earlier gains. Likewise, light selling pressure hit Aussie bond futures in early Sydney trade, but they stabilised later on. YM last operates -0.5 & XM -3.5, with YMXM +3.5 as we type. Bills trade 1-5 ticks lower through the reds. The AOFM slashed its planned bond issuance for FY2021-22 to A$105bn from their July forecast of A$130bn.