Powell’s Words Go A Long Way

Core bond markets were generally a touch above worst levels late in the Asia session.

• The bear flattening of the U.S. Tsy curve continued in Asia-Pac dealing, as the region reacted to Fed Chair Powell’s hawkish tones, delivered Monday. Note that a little over 80bp of cumulative tightening is now priced into OIS covering the next two FOMC meetings, with a total of ~190bp of cumulative tightening priced over the remainder of the year. Also on that front, Goldman Sachs now look for back-to-back 50bp hikes in May & June. There was a brief respite in the sell off during early futures trade, with a very modest uptick observed, before the re-open of cash trade ushered in fresh cheapening pressure that never really looked like reversing. That leaves cash Tsys 4-6bp cheaper ahead of London trade, with 2s leading the way lower. TYM2 is -0-04 at 123-02, 0-05 off the base of its 0-14+ overnight range. There wasn’t much in the way of notable headline flow to observe, with RTRS sources flagging confirmation that J.P.Morgan had processed Russia’s bond coupon payments. Flow was headlined by a block seller of FVM2 (-2,934), while regional $-denominated issuance saw Indonesia start to market multi-tranche 10- & 30-Year paper, which could price as soon as today. NY hours will see Richmond Fed manufacturing activity data complimented by Fedspeak from Williams, Mester (’22 voter) & Daly (’24 voter).
• JGB futures played catch up after the elongated Tokyo weekend, with talk of a Y10tn+ fiscal stimulus package (to be delivered later this year) applying some domestic impetus to the sell off, even as Chief Cabinet Secretary Matsuno noted that the government isn’t looking at compiling a stimulus package at present. Still, JGB futures weren’t able to breach their February cycle low, with the contract closing -20 on the session. Cash JGBs bear steepened with the major benchmarks running little changed to 2bp cheaper on the day (10s are less than 1bp away from the level that triggered the BoJ’s fixed rate operations in Feb). Comments from BoJ Governor Kuroda failed to add anything meaningful to the monetary policy debate. JPY issuance saw Egypt flag a private placement of 5-Year JPY paper for Japanese institutional investors.
• Aussie bonds bear flattened, with U.S. Tsy gyrations in the driving seat, that left YM -19.0 and XM -14.0 at the bell, with longer dated cash ACGBs cheapening by ~11bp. RBA Governor Lowe continued to muddy the optics surrounding the eventual cash rate lift off, noting that the Bank is monitoring how “pervasive” the shift in inflation psychology is in Australia, with evidence required on that front before the Bank responds. The IR strip ran 7-26 lower come settlement.