Off Lows, Twisting Flatter

The ability of Japanese PM Kishida to hold onto his legislative majority in the weekend's lower house elections removed some political uncertainty and increased the likelihood of notable fiscal support in the coming months, applying pressure to core fixed income markets in Asia, before a recovery later in the overnight session. This outweighed softer than expected official PMI data out of China (which pointed to manufacturers hampered by electricity limitations and surging input prices). TYZ1 is a touch lower as a result, -0-03 at 130-19+, 0-05 clear of lows. Twist flattening has been at the fore with yields running 1.0bp lower to 2.0bp higher across the curve, as the belly leads the weakness and the long end firms.

• Tsys were happy to follow EGBs lower in early trade on Friday, with most pointing to ACGB and post-ECB dynamics, as plenty of attention fell on the embedded ECB rate hike premium now priced into markets. That was before a series of block buys across the complex (covering everything from TU out to WN) helped stabilise the space. A fresh round of weakness kicked in after U.S. PCE data met exp., while the latest MNI Chicago PMI print revealed a faster rate of expansion when compared to both prev. and exp. The space formed a base in the wake of the PCE print, with block buys of FV in the early part of the NY afternoon helping drag the space higher, before the bid accelerated into the month-end rebalancing window. The major cash Tsy benchmarks finished ~1bp cheaper to 5bp richer on the day, with 2s and 30s finding themselves at the opposite ends of the spectrum as the curve twist flattened.
• Final m'fing PMI readings from across the globe are set to headline ahead of Monday's NY session. The latest ISM m'fing print tops the domestic docket on Monday, although it will be Wednesday's FOMC meeting (where a tapering announcement is expected) and Friday's NFPs that draw the bulk of the attention this week.