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Reflation Trade Narrative Takes Wind Out Of Core FI's Sails


Core FI have come under pressure amid a spill over from Friday's reflation trade narrative, with activity limited by the ongoing LNY holidays in China, HK & Taiwan as well as Monday's holiday in the U.S. T-Notes have dipped in Tokyo and last trade -0-06 at 136-11+, as e-minis printed best levels on record. Cash Tsys are closed, owing to the aforementioned closure of U.S. markets. Eurodollar futures last trade unch. to -1.0 tick through the reds.

  • Similar dynamics observed in the Japanese bond market. JGB futures re-opened lower and last trade at 151.55, 11 ticks below last settlement and off session lows at 151.51. JGB yields mostly sit marginally above neutral levels, save for 2s which outperform in the space. Japan's preliminary GDP report for Q4 was better than expected and the Nikkei 225 broke above 30,000 for the first time since 1990. The BoJ left the sizes of its 1-10 Year JGB purchases unch. today. Focus in Japan moves to final industrial output.
  • In Australia, YM -1.0 & XM -6.0 at typing, with cash ACGB curve running steeper as yields sit up to 7.9bp higher. Bills trade unch. to -2 ticks through the reds. The auction for A$400mn worth of ACGB 2.25% 21 May '41 came and went, while the RBA offered to buy A$2.0bn of ACGBs with maturities of Nov '24 to May '28, excluding Nov '25. Across the Tasman, New Zealand put Auckland under a three-day lockdown after detecting new Covid-19 cases in the community and Australia suspended the bilateral travel bubble.

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