Mixed Performance For Core FI In Asia

U.S. Tsys richened a little overnight, likely drawing support from a study re: the transmissibility/evasive capabilities of the omicron COVID variant. There isn’t much to surprise in the article itself, but the evasive capability of the COVID strain when it comes to infecting the vaccinated/previously infected is once again noted. Reports that Chinese property developer Fantasia entered receivership would have also provided some support. TYH2 last dealing unch. at 130-06+, while cash Tsys run flat to 2.0bp richer on the day, with 20s leading the bid. A 6K block seller of FVH2 was observed overnight. Note that we have seen a block seller of FVH2 futures ahead of London hours Monday-Thursday. Monday, Tuesday and Thursday saw block sales of 6.0K in size, while Wednesday saw a 5.0K block sale. NY hours will see weekly jobless claims data and 30-Year Tsy supply.

• JGB futures edged lower on Wednesday’s U.S. Tsy lead & the weakness observed in broader core global fixed income during early Tokyo trade, before ticking away from worst levels. That left futures -4 at the bell, while cash JGBs run somewhere between -/+0.5bp on the day. We saw a run-of-the-mill round of 5-Year JGB supply. The lack of relative value appeal on the curve, with the aforementioned flatness & richness vs. shorter dated & belly peer JGBs, weighed on the cover ratio. That metric moved away from November’s multi-month high for a 5-Year auction and printed below the 6-auction average (3.98x). We also note that 5s do not provide anything like a comparable carry and roll proposition when looking to longer dated paper, which would disincentivise those looking to enter the long leg of a steepener play at this auction. The tail remained very tight, with the low price just about topping wider expectations (the BBG dealer poll looked for a low price of 100.42).
• Wednesday’s U.S. Tsy price action made for a twist steepening of the ACGB curve, that didn’t really ever go away, even as U.S. Tsys firmed during Thursday’s Asia session. That left YM +1.3 & XM -5.7 come the bell. EFPs narrowed, with the weakness in bonds and reduction in RBA SLF demand covering ’23 & ’24 ACGBs helping ease some of the widening pressure there (at least for now). RBA board member Harper largely echoed Governor Lowe in a BBG interview. Roll flow dominated.