Mixed Performance For Core FI In Asia

U.S. Tsys have experienced some marginal richening in Asia dealing, with regional participants willing to buy Tuesday’s dip. Outright yield levels, questions re: the potential for further short-term hawkish Fed re-pricing, downside misses in the latest round of Chinese inflation data and questions in the West re: the apparent de-escalation in the Russia-Ukraine standoff (punctuated by U.S. President Biden’s continued alert re: the potential for a Russian invasion of Ukraine) are likely fostering the bid. Cash Tsys run 0.5-2.0bp richer across the curve, back from best levels, with the front end leading, facilitating some bull steepening. TYH2 prints +0-03+ at 125-26+, 0-03+ back from the peak of a 0-07+ range. TY block buys (+3,431/-3,431) and a block seller of the TYJ2 126.00/125.50 put spread (-20K), which looked like a rolldown of strikes, headlined on the flow side overnight. Looking ahead, NY hours will see the release of U.S. retail sales & industrial production data, as well as 20-Year Tsy supply. We will also get the minutes from the most recent FOMC meeting, in addition to Fedspeak from Kashkari (’23 voter, dove).

• JGB futures consolidated overnight losses during Tokyo trade, hitting the bell -15, sticking within a tight range. Cash JGBs are flat to ~3.5bp cheaper, steepening, with 30s providing the weak point on the curve. The early steepening extended on the back of a jump in the offer/cover ratio witnessed in the latest round of 25+-Year BoJ Rinban operations. 10s were little changed on the day, with participants seemingly unwilling to chase yields higher given the BoJ’s recent pre-emptive action to enforce the top end of its permitted 10-Year JGB yield trading band. Comments from BoJ Kuroda didn’t include any fresh points of note, with the same holding true when it comes to comments made by Japanese Finance Minister Suzuki.
• The impulse from U.S. Tsys provided a light bid for the Aussie bond space, with futures moving away from early Sydney lows, after bears failed to force a test of overnight troughs. YM -1.0 & XM -4.5 as a result, paring some of the overnight losses. Cash ACGB trade saw a fairly parallel shift in the 10+-Year zone, as the curve bear steepened. In local news, Australian Treasury Secretary Kennedy (who also sits on the RBA board) noted that fiscal stimulus should be tapered (a trend that is already in place) in order to facilitate the start of the monetary policy normalisation process. Kennedy did caution that premature tightening could prevent Australia from reaching full employment, while reaffirming the broader uncertainty when it comes to the required level of unemployment that would facilitate notable wage growth. The undertones of Kennedy’s remarks re: unemployment & the labour market were seemingly in line with wider RBA-think i.e. unemp. can (and needs) to be pushed lower.