Off Of War Worry Extremes

A lack of outright escalation surrounding the Russia-Ukraine situation, in addition to an apparent continued push for a diplomatic solution re: the matter saw core global FI markets back from late Friday/early Asia highs, with e-mini futures lodging gains of ~0.2% overnight after Friday’s sharp risk-off move surrounding the same Russia-Ukraine worry. TYH2 is unch. at 126-12+, with cash Tsys running 1.0-3.0bp cheaper across the curve (2s lead the weakness, while the 5- to 10-Year zone lags). Asia-Pac flow was headlined by a block buy of TU futures (+6,747). Looking ahead, Monday’s NY docket will be headlined by a television address from St. Louis Fed President Bullard (’22 voter, hawk). A reminder that Bullard pointed to the potential for an inter-meeting rate hike in the wake of Thursday’s CPI print, in addition to calling for 100bp of tightening by the start of July. There will of course be continued focus on the Russia-Ukraine situation, which adds the obvious source of headline risk.

• JGB futures pulled back from best levels, closing -1, with a lack of fresh upside catalysts apparent, while the lack of overt escalation surrounding the Russia-Ukraine situation is probably a source of downside pressure. The cheapening in super-long JGBs may give participants fresh ammunition to test the BoJ’s resolve re: the enforcement of its YCC programme after today’s fixed rate operation drew no offers to sell given yield dynamics in play since the 10-Year JGB operation was announced (a reminder that various senior BoJ officials, including Governor Kuroda, have pointed to no change in policy settings until the Bank achieves its inflation goal). Note that 10-Year JGB yields currently sit at 0.22%, while a close above 0.23% seemed to be the trigger for the announcement re: the BoJ’s fixed rate operations.
• There hasn’t been much to report for the ACGB space, with futures largely tracking gyrations witnessed in the wider core FI complex (albeit with a slightly different beta), allowing YM & XM to move away from their respective Friday peaks, before consolidating. YM +7.0 & XM +7.5 at the bell as a result. The 7- to 12-Year zone of the cash ACGB curve outperformed.