Off Lows

Core fixed income was fairly insulated from today's rally in crude (WTI & Brent trade over $1.00 above their respective settlement levels at typing), outside of the early and limited foray lower. As we mentioned earlier, the German federal election avoided the formation of coalition between the 3 left parties, which would have provided the biggest policy shock out of the potential outcomes, which is perhaps supporting the space. Perhaps some fiscal uncertainty in DC is also playing into the mix.

• This allowed Tsys to move off of their early lows, with T-Notes +0-04 at 132-04+, while cash Tsys run little changed to 1.0bp richer across the curve. U.S. Tsy supply is front-loaded this week, with 2s and 5s set for auction on Monday, while 7s will be auctioned on Tuesday. Monday will also see Fedspeak from Brainard, Williams & Evans, in addition to prelim durable goods data for Aug.
• Morning trade saw JGB futures bounce ahead of the previously outlined technical support level (151.49) after a retest of the overnight low, with the contract last +1 vs. settlement, fully unwinding the overnight weakness. Cash JGBs are little changed to ~1.0bp richer out to 20s, while 30s and 40s are marginally cheaper on the day, perhaps facing some headwinds ahead of tomorrow's 40-Year JGB supply. Local news flow continues to fixate on the upcoming LDP Party leadership election (with reports suggesting that the first round may not result in a majority winner) and COVID (with reports pointing to all related state of emergencies being lifted come the end of this month).
• ACGBs mimicked the broader moves in global core FI markets. A piece from Westpac chief economist Bill Evans is being re-circulated early this week. The piece, which was initially published on Friday, suggested that the Australian government should realign the RBA's inflation target to 1-3% to be consistent with other central banks. YM last +0.5, XM +1.0.