Payside Flows In U.S. Swaps & A Downtick In Oil Weigh On Core FI In Asia

Payside flows in U.S. swaps and a pullback from fresh ~2-week highs in crude oil futures (a marginal downtick in stagflationary worry) applied pressure to broader core fixed income markets overnight. There was a lack of major headline flow apparent ahead of the heavily awaited NATO summit, with fresh U.S. sanctions directed towards Russia and measures to mitigate European reliance on Russian energy supply front and centre at the upcoming gathering.

• TYM2 pushed to fresh session lows ahead of London trade, with TYM2 last -0-08 at 122-28+, 0-03 off the base of the 0-16+ overnight range, on volume of ~140K. Cash Tsys run 3-6bp cheaper on the day, with 5s leading the way lower (note that 5s provided the focal point of the aforementioned payside swap flows,), allowing the 5- 30-Year yield spread to tag another fresh cycle low. Futures flow was headlined by a block seller of FVM2 (-5,375) & block buyer of TUM2 (+3,399). Fedspeak from Bullard (’22 voter, hawk) offered nothing of any real interest during Asia-Pac hours. Looking ahead, outside of the NATO summit, NY hours will see the release of weekly jobless claims data, durable goods, 10-Year TIPS supply and Fedspeak from Waller, Kashkari (’23 voter), Evans (’23 voter) & Bostic (’24 voter).
• JGB futures finished 12 ticks lower on the day, softening in the Tokyo afternoon, although the contract failed to breach its overnight session lows. 10-Year JGB yields closed at 0.23%, the level that triggered BoJ intervention back in February. Will the Bank announce fixed rate operations after hours today? It did so in February, in a pre-emptive step to protect the upper end of its permitted -/+25bp 10-Year JGB yield trading band. The cash curve twist steepened around the 5-Year point, with 7s (futures-driven) and 40s providing the weak points, cheapening by ~1.5bp on the session. Dovish BoJ dissenter Kataoka provided his usual round of reflationist rhetoric in his latest speech.
• ACGBs were dominated by the wider core FI impetus (allowing the space to move back from its early Sydney peak). Contained swings were once again observed into the futures close (as has been the case on several occasions this week). That left YM -1.0 & XM +1.0 at the close, with the cash curve twist flattening as longer dated cash ACGBs richened by ~3bp.