Lingering Caution Underpins Core FI, NZGB Dynamics Still In Focus

Lingering risk aversion continued to fuel a rally in T-Notes, as Asia-Pac players digested Fed Chair Powell's attempt to downplay unwanted inflation risk & tighter lockdown measures imposed in several European countries. Hong Kong's and Macau's move to suspend vaccinations with a faulty batch of BioNTech Covid-19 jabs & North Korea's latest missile test added to existing worries. Meanwhile, NZGB dynamics continued to lend support to broader core FI space, to a degree. T-Notes last sit +0-10+ at 132-08, testing session highs. Cash Tsy curve bull flattened, with yields last seen 0.2-3.2bp lower. Eurodollar futures run 0.5-2.0 ticks higher through the reds. 5-Year Note supply, Powell/Yellen Senate testimony, flash durable goods orders & Markit PMIs as well as more Fedspeak are the main points of note in the U.S. today.

• Fluctuations in JGB futures were directionless, the contract last trades at 151.43, 17 ticks above prior settlement. Cash JGB yields trade lower across the marginally flatter curve, with 40s outperforming ahead of tomorrow's auction of 40-Year JGBs. The slightly outdated minutes from the BoJ's Jan MonPol meeting provided little in the way of market-moving insight.
• Bull flattening evident also in cash ACGB space, with yields last seen 0.3-8.5bp lower. YM trades +3.0 & XM +8.0, both just a touch below their respective highs. Bills are unch. to +2 ticks through the reds. The downsized (A$1.2bn) offering of ACGB 1.25% 21 May '32 was smoothly digested, as was the RBA's proposal to buy semi-gov't bonds. There is some more RBA speak from Debelle & Bullock coming up today, after their colleague Harper said that the economic recovery is faster than expected. NZ bond market remained in focus, as the RBNZ missed the purchase target in today's LSAP ops, while the collapse in NZGB yields/paring of RBNZ rate-hike wagers continued.