U.S. Tsys corrected recent sell-off ahead of the imminent monetary policy announcement from the Fed, with markets still fully pricing a 75bp rate rise. Reprieve for the space was coupled with upticks in U.S. e-mini futures, testifying to stabilisation in market sentiment. Pre-Fed musings overshadowed Chinese economic activity data, which were generally better than expected, but also fleshed out uneven recovery in Asia's largest economy.
- T-Notes extended its move away from Tuesday's low and climbed as high as to 114-28+, failing to take out that level on two attempts. TYU2 last operates +0-12+ at 114-25+, with Eurodollars running 4.5-8.0 ticks higher through the reds. Cash Tsy curve underwent bull steepening, with yields last seen 3.4-6.4bp lower. It goes without saying that the FOMC's rate decision provides the main risk event today. Just for the record, Empire Manufacturing, retail sales & terms of trade are also due.
- JGB futures staged a dynamic recovery as the BoJ specified 7-Year JGB yield for its unlimited fixed-rate bond-buying operation in a bid to prevent yield curve distortions. The Bank offered to buy Sep '29 notes (JB#356), the cheapest securities for 10-Year JGB futures, alongside the current Mar '32 debt (JB#366). The move came after 7-/10-Year JGB yield spread turned negative on Tuesday, with BoJ action pushing it back towards zero. Futures struggled to hold onto aforementioned gains and eased off into the lunch break, extending their pullback thereafter to erase all gains. JBU2 last deals at 146.96, 63 ticks shy of previous settlement. Bull flattening hit the cash curve, but its impact has been uneven, with 10s lagging and super-longs outperforming. The BoJ is wrestling with markets ahead of its policy meeting Friday and when this is being typed, there is speculation that we can see another unscheduled bond-buying operation today.
- The addition of hawkish RBA bets exerted further pressure on ACGBs after they played catch-up with overnight U.S. Tsys' sell-off. Governor Lowe gave an interview Tuesday evening, noting that inflation could reach +7.0% Y/Y by year-end, with Goldman Sachs boosting their RBA rate-hike call after these comments. Above-forecast increase in Australia's minimum wage played into the narrative of hawkish RBA forecasters. Cash ACGB yields sit 16.3-20.0bp higher, curve runs flatter. Rate-sensitive 3-Year yield posted the largest gain, while 10-Year yield lodged new eight-year highs. Selling pressure spilled over into main futures contracts, with YMU2 last -18.4 & XMU2 -17.8, both at/near session lows. Bills trade 14-22 ticks lower through the reds. Consumer confidence data were overshadowed by aforesaid developments, despite painting a rather bleak picture.