JGB Futures Pop, Core FI Limited Elsewhere Ahead Of U.S. CPI

Core FI markets struggled to find much in the way of clear impetus during Asia-Pac hours, with focus on the impending U.S. CPI release. Chinese inflation data provided a downside miss. As we noted ahead of that dataset, a decrease in inflationary pressures leaves more room for policy easing (with Beijing already tipping their hat towards more pro-growth policy moves in recent months), but that didn’t do much for the space.

• TYH2 struggled to make headway above Tuesday’s high, last dealing +0-04 at 128-16+, while cash Tsys run within -/+0.5bp of Tuesday’s closing levels. The aforementioned CPI release headlines the NY docket on Wednesday, with average hourly earnings also due. Supply comes in the form of 10-Year Tsys, while Fedspeak from Minneapolis Fed President Kashkari (’23 voter, dove) also on the slate.
• JGB futures popped higher, with nothing in the way of overt catalysts observed (a reminder that speculation surrounding the potential for CTA a/c selling weighed on futures on Tuesday). The contract reclaimed the 151.00 level, finishing +29. Futures were in the driving seat when it came to cash JGB trade, with 7s outperforming, as benchmark JGBs printed little changed to ~3.0bp richer across the curve. 5-Year JGB supply wasn’t the firmest in recent history. The cover ratio slipped to print at the lowest level witnessed at a 5-Year JGB auction since May ’21, comfortably below the 6-auction average, although the price tail only experienced an incremental widening, holding tight. The low price met broader dealer expectations. BoJ Governor Kuroda stuck to the well-worn script in his latest address, while the BoJ upgraded its economic assessment of all nine of the Japanese geographical regions that it covers.
• Aussie bond futures seemed to benefit from the bid in JGBs and a solid round of ACGB supply. In terms of specifics, the latest ACGB Nov ’32 auction passed smoothly enough, with the weighted average yield printing 0.42bp through prevailing mids (per Yieldbroker), while the cover ratio was comfortably above 3.50x. YM +2.5 & XM +4.5 come the close, with a limited round of Sydney trade noted.