RBA At The Fore In Asia

There hasn't been much in the way of domestic headline flow for U.S. Tsys to absorb, outside of the Chairman of the House Rules Committee, McGovern, noting that a House panel is likely to meet on Wednesday re: discussions surrounding President Biden's spending plan. More widely, the post-RBA bid in ACGBs has provided a bid for the space, while the lockdown of just under 20 schools in the Chinese capital of Beijing may have exposed some nerves. TYZ1 has hit fresh session highs in recent trade, before easing back a touch, last trading +0-07 at 130-28, while cash Tsys run little changed to 2.0bp richer across the curve, unwinding the early, modest cheapening and more, with bull steepening in play as the front end leads the rally. Flow was headlined by a block buy of TYZ1 (+1,250), while the short end saw a screen lift of the 0EZ1 99.625/99.375/99.125 put fly (+7.5K). There is nothing in the way of notable domestic releases scheduled on Tuesday, which will allow participants to zero in on Wednesday's FOMC meeting.

• The JGB curve has seen some twist steepening, with paper out to 20s little changed to 2.0bp richer as the belly outperforms, while 30s and 40s have seen cheapening of 0.5-1.0bp, perhaps pointing to some worry re: the impact of the impending supplementary budget on long end issuance. Technical steepener interest may also be present, after the likes of the 10-/30-Year yield spread tagged a multi-month low in recent sessions. The space has firmed a little in afternoon trade after BoJ Rinban ops covering 1- to 5- & 10- to 25-Year paper revealed a downtick in cover ratios vs. the prev. ops, while the broader bid in core FI market post-RBA likely provided further support. This allowed futures to firm, last +7 on the day.
• The RBA dropped its YCT mechanism, as expected, adopting a more open-ended round of forward guidance re: the cash rate alongside that move, with a subsequent press conference from Governor Lowe pointing to optionality when it came to a '23/'24 rate hike. This provided a disappointment vs. hawkish market pricing, which was already well in advance of the prior RBA guidance. Wage growth remains at the fore of the Bank's thought process, even with underlying inflation now seen within the target band over the entirety of the Bank's forecast horizon. The front end led the bid that eventually took hold after the initial post-RBA vol. (which was aided by thinned liquidity surrounding the Melbourne Cup). That left YM +6.5 and XM +1.5 come the close, with the early bear steepening morphing into bull steepening.