RBA Looks For More Patience Than Rates Markets Price

TYH2 stuck to a narrow 0-04+ range overnight, last +0-01 at 127-29 on light volume of 45K (impacted by the ongoing observance of the LNY holiday period across major financial centres in Asia and a related lack of macro headline flow). Cash Tsys run flat across the curve. NY hours will see the latest ADP employment print, in addition to the release of the quarterly Tsy refunding announcement.

• JGBs firmed during the Tokyo morning, with futures printing through their overnight high, before paring back from best levels, hitting the bell +8. The bid looked to be futures led, with 7s outperforming in cash trade, where the major benchmarks run flat-1.0bp richer on the session, while the long end lagged a little ahead of tomorrow’s 30-Year JGB issuance. The fact that 5s failed to test the 0% mark and backed off (a little) also supported the space. The BoJ carried out the previously outlined BoJ Rinban operations, with sizes of the respective purchases unchanged, with the following offer/cover ratios observed: 1- to 3-Year: 2.26x (prev. 1.61x), 3- to 5-Year: 2.01x (prev. 2.43x), 10- to 25-Year: 2.05x (prev. 3.19x).
• RBA Governor Lowe’s heavily awaited address allowed the ACGB space to correct from early Sydney lows. The Governor stressed the Bank’s ability to wait when it comes to rate hikes given broader uncertainties and a lack of worry re: runaway inflation. He noted that a rate hike in ’22 is plausible, as is a scenario whereby lift-off is 1 year+ down the line (while stressing that he “struggles” with the degree of tightening priced into markets at present). Lowe underscored the idea that the RBA’s goals are now in sight, while pointing to wage growth of 3% in ‘23, alongside the need for the Bank to monitor a wider array of wage metrics owing to the varied renumeration practices observed in tight labour markets. YM & XM finished -1.0 on the day, with the Bill strip twist steepening, +3 to -3 through the reds.