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NY Fed Operational Purchase

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T-Notes trickled lower as the front end/belly of the Aussie bond curve cheapened, although the contract has recovered from worst levels, to last trade -0-02 at 131-30+, with cash Tsys trading flat to 1.0bp cheaper after Thursday's aggressive twist flattening.

  • JGBs showed nothing in the way of meaningful lasting reaction to the latest BoJ decision, which saw the Bank leave its broader monetary policy settings unchanged. Futures +8 last after drifting back from overnight levels, with the major benchmarks generally holding around 1.0-1.5bp richer in cash trade. 7s the underperformer (a mere 0.3bp richer at typing) after yesterday's futures driven weakness for that particular benchmark. The BoJ extended the life of its Special Funds Supplying Operations to Facilitate Financing in Response to COVID-19 by 6 months through the end of March '22, as expected. The Bank also noted that it will outline a new fund provisioning measure surrounding climate change at its July meeting, which will succeed the existing fund provisioning measure to support the strengthening the foundations for economic growth (which will run through June '22, as scheduled).
  • In Sydney YM futures softened last -2.5, with XM hovering around overnight closing levels, +4.5 at typing, extending on the overnight flattening of the curve. It would seem that the driving factor in the front-end/belly of the curve may have been an adjustment re: the 3-Year ACGB yield call of Westpac chief economist Bill Evans. Evans now looks for the 3-Year ACGB yield to move to 0.40% by the end of Dec '21 (prev. 0.35%). The belly of the ACGB curve has been particularly soft in relative terms during post-FOMC dealing, which has allowed the 2-/5-/10-Year butterfly to extend to the widest levels witnessed since the vol. event in March (which in itself represented the highest levels seen since '18). The ACGB Apr '24/Nov '24 yield spread has pushed back out towards the wides witnessed back in March as participants price out the chance of the RBA rolling its 3-Year yield target into ACGB Nov '24 at its July meeting, weighing on the broader belly in the process. A reminder that the sell-side community has long pointed to the potential for the belly to underperform on any QE tapering from the RBA. Elsewhere, AUD 1-Year/1-Year forward swap rates are pushing on to levels not seen since April '20.