Limited Pre-FOMC Ranges Observed

Core FI markets initially looked through surging Chinese & Hong Kong equities after the Chinese State Council pledged to support equity markets via post-meeting communique, The pre-headline resumption of the uptick in Chinese & HK equities had already applied some modest pressure to the space.

• Cash Tsys have cheapened a touch as European traders start to file in and react to a 7+% surge in the Hang Seng, with TYM2 last -0-02 at 124-19, printing a fresh session low, although the contract has stuck to a narrow 0-09 range in Asia, on volume of ~82K (limited by the proximity to the upcoming FOMC decision). Cash Tsys have twist steepened running 0.5bp richer to 2.5bp cheaper on the day, pivoting around 3s. A block buy of TU futures (+5.294) headlined on the flow side in Asia. Wednesday’s aforementioned FOMC decision provides the major risk event (click for our full preview of that event: https://marketnews.com/mni-fed-preview-mar-2022). Elsewhere, retail sales data provides the highlight of the U.S. economic data releases on Wednesday, with MBA mortgage applications, NAHB housing data and business inventories also due. On the Russia-Ukraine front, Ukrainian President Zelenskyy noted that “the positions of Ukraine and Russia at negotiations sound more realistic, but more time is still needed,” ahead of another round of Russia-Ukraine discussions and U.S. President Biden’s Wednesday address re: aide for Ukraine.
• JGB futures benefitted from the presence of the latest round of BoJ Rinban operations during the Tokyo morning, while a modest uptick in the U.S. Tsy space provided some further support, outweighing growing expectations re: the declaration of a fresh Japanese fiscal stimulus package. Still, the contract failed to breach its overnight high on a couple of occasions, even with a supportive Rinban breakdown evident. The space subsequently backed off from best levels during the afternoon, showing little reaction to the aforementioned headlines re: Chinese equities. That left futures +5 at the bell, while cash JGBs twist flattened, running 0.5bp cheaper to ~2bp richer, with 20s outperforming.
• Aussie bond futures stuck to fairly limited ranges, with YM +5.5 and XM +2.4 come the bell, back from best levels. There wasn’t much in the way of notable headline flow driving the space. ACGB May-32 supply stuck to the recent trend, with pricing comfortably through prevailing mids (to the tune of 0.69bp, per Yieldbroker), while a lack of relative value appeal and the ongoing market volatility limited the cover ratio a little, although that metric still printed comfortably above the 3.00x level. Thursday’s post-FOMC calendar will be headlined by the release of the latest Australian labour market report.