JGBs Twist Flatten, U.S. Tsys richen Slightly

Tsy Futures have pulled back from best levels, with crude oil futures also back from their fresh multi-year highs (crude still prints ~$4/bbl firmer on the day), after showing higher in early Asia trade. Cash Tsys run 1-4.5bp richer on the day, bull steepening, while TYM2 hovers around the middle of its overnight range, last +0-05 at 127-14. It was difficult to ascertain an outright driver of price action when it came to the early bid in the space, perhaps worry re: stagflation risk as oil surged again, perhaps some post-Powell short cover in thin liquidity. Headline flow was light in Asia, with markets remaining on the lookout for any developments surrounding the Ukraine-Russia conflict (note the latest meeting between delegations from the two coutnies is due to take place on Thursday). Looking ahead, the NY docket will be headlined by the ISM services PMI print, with weekly jobless claims data, Challenger job cuts, factory orders and final durable goods readings also due. On the Fedspeak front, Chair Powell will appear on the Hill again, while NY Fed President Williams and Richmond Fed President Barkin (’24 voter) will also speak.

• Cash JGBs run 3bp cheaper to 2bp richer, twist flattening, with 7s leading the cheapening, while 30+-Year rallied in the wake of a smooth round of 30-Year JGB supply. The auction saw the low price top broader dealer expectations, while the tail saw a very modest widening as the cover ratio moderated (slipping below the 6-auction average of 3.27x). We would suggest that some of the uncertainties we flagged ahead of the auction e.g. oil prices and questions surrounding global central bank dynamics in ’22, may have limited overall demand, but the pricing of the auction was firm enough, with demand generated by the well-documented recent steepening/cheapening in the space. Futures saw an extension of their overnight losses, but retraced from their early afternoon lows, hitting the bell -40. Early Price auction was dominated by spill over from Wednesday’s weakness in U.S. Tsys. Local headline flow was dominated by BoJ board member Nakamura reiterating the need for persistent monetary easing (with a focus on promoting wage growth, in addition to achieving the BoJ’s inflation target), while flagging the potential for a temporary approach towards the BoJ’s 2% price goal, given the wider inflationary dynamics in play at present.
• The uptick in U.S. Tsys since the Asia re-open has provided some light spill over support for the ACGB space, leaving YM & XM -9.0 at the bell, with the contracts moving away from their early Sydney trough. Local data saw much softer than expected building approvals data and a wider than expected headline monthly trade surplus (on firmer than expected exports and softer than expected imports). Cross-market demand may have been in play post-Powell (after some apparent hesitance in the wake of the recent vol.), with the AU/U.S. 10-Year spread tightening below 30bp, before nudging away from session tights.