No Let Up For Core FI In Asia

Core FI markets continued to leak lower during Asia-Pac hours, with FT reports pointing to the potential for de-escalation when it comes Russia-related geopolitical tensions potentially aiding the cheapening.

• TYH2 took out Monday’s Asia lows, with focus now switching to nearby Fibonacci support (126-16), as the contract trades -0-09+ at 126-19+, just off worst levels of the day. Cash Tsy trade saw 10-Year yields register fresh multi-year highs (with the same holding true for 2s & 5s), with the major benchmarks cheapening by 2-4bp, as the front end led the way lower. A 2.5K block sale FVH2 118.50 puts headlined on the flow side in Asia. NFIB small business optimism data and the latest round of 3-Year Tsy supply headline the NY docket on Tuesday.
• JGB trade saw the curve bear steepen, with the major benchmarks cheapening by 0.5-3.0bp on the day. Participants remain wary of the potential for BoJ enforcement when it comes to the top end of the Bank’s permitted trading band (0.25%), with that particular benchmark operating around the 0.21% level. JGB futures respected post-NFP lows, closing -18 on the day.
• Broader core FI weakness, trans-Tasman impetus from NZ bonds (although part of that reflected a degree of catchup after the long weekend in NZ), a couple of major sell-side institutions pointing to hawkish risks re: their RBA calls and an ex-RBA board member pointing to cash rate lift off by August and the likelihood of a 1.00% cash rate target at year end (which is a little less hawkish than market pricing at present) all applied pressure to the ACGB space, after futures steepened in overnight dealing. That left YM -8.5 & XM -12.5 at the close (as steepening came back to the fore as we moved through Sydney trade). Meanwhile, the IR strip bear steepened, finishing unchanged to 10 ticks cheaper on the day.