Mixed Fortunes In Asia

U.S. Tsys looked through the softer than expected official Chinese PMI data for the month of March, with well-documented issues such as the localised COVID-related lockdowns evident in China & Russia-Ukraine related worry/disruptions already at the fore of participants’ minds. Note that the Chinese policymaking sphere has previously pledged to do more to support the economy, via several well-documented addresses, which likely limited any potential post-data follow through when it comes to market action. TYM2 printed through Wednesday’s high on source reports pointing to the potential for a meaningful release from the U.S. SPR oil stockpiles (with an IEA meeting scheduled for Friday to discuss such a move), but has pulled back, with oil markets continuing to soften (WTI is within touching distance of $100) as the market juggles the stagflation/inflation narrative and reports of Russia offering oil to India at steep discounts. The contract is last +0-00+ at 122-20+, with a lack of momentum evident after the initial pull higher. Cash Tsys are unchanged across the curve. There was no reaction to news that Russia-Ukraine talks will restart on 1 April (in an online format). Flow was headlined by a block sale of TUM2 futures (-2,407). Looking ahead, the NY session will bring the release of the PCE data suite, weekly jobless claims, the monthly MNI Chicago PMI release and Challenger job cuts. We will also get comments from NY Fed President Williams, although the scope for monetary policy-related language may be limited given the fact that he will make opening remarks at a conference on the future of NYC.

• JGB futures traded in a more contained manner during the Tokyo session, dealing either side of unchanged, with participants seemingly happy to pause for breath after yesterday’s volatility, in what is the final Tokyo trading session of the Japanese FY. The super-long end of the cash JGB curve was a little more active, with the impact of yesterday’s BoJ action still being felt there, as 30s and 40s sit over 8bp richer on the day, with 40s back below 1.00% in yield terms, just. Note that 10-Year JGB yields are little changed on the session, printing around the 0.225% mark, 2.5bp shy of the upper boundary of the BoJ’s permitted trading range, with no offers tendered at today’s BoJ fixed rate operations (As you would expect, given yield levels). Futures are +7 last. This week’s reaffirmation of the BoJ’s dovish credentials, combined with the Japanese bias for domestic securities ahead of FY end & cross currency basis-related FX hedged yield pickup for some quarters of the foreign investor sphere outweighed any headwinds from offshore investors’ propensity to sell Japanese bonds ahead of the end of the Japanese FY when it came to today’s 2-Year JGB auction. That allowed the cover ratio to hit the highest level observed at a 2-Year auction since April ’20, with the price tail holding tight and low price topping wider expectations (which stood at 100.050). Participants now eye the release of the BoJ’s quarterly Rinban schedule, which will be published at 17:00 Tokyo/09:00 London. Given the BoJ’s clear support of its current YCC settings many expect the BoJ to increase the size of its Rinban purchase in Q222, via larger operations and/or more frequent purchases. Still, this doesn’t mean the BoJ will not face issues in defending its YCC strategy further down the line e.g. if global yields rise further or if it decides to reduce the cumulative size of its Rinban operations at some point.
• The Aussie bond space operates off of best levels with YM +2.0 and XM -5.0, pulling lower into the bell, with nothing in the way of notable month-end buying to counter the move. This comes after a short squeeze in YM faded, with gyrations surrounding the reports re: a potential sizeable U.S. SPR oil release evident, as wider market moves began to re-exert control on the space. Aussie bonds looked through local data, which included much firmer than expected building approvals, in line with expected private sector credit and a continued increase in job vacancies in February (albeit at a slower 3-month rate vs. January). The latter added to the evidence of an ever-tightening labour market.