Risk Aversion Aids Core FI But ACGBs Take Hit From Strong Inflation Data

Australia's above-forecast Q4 CPI data delivered a blow to ACGBs but continued risk rout provided support to the core FI space, underpinning partial recovery in Aussie bonds. The prospect of a Russian military strike on Ukraine and uncertainty ahead of Wednesday's monetary policy announcement from the increasingly hawkish Fed cumulated into an unabating sense of anxiety.

• Consumer prices down under grew 3.5% Y/Y in the final quarter of 2021, while the RBA's preferred metric of underlying inflation printed at +2.6%, crossing above the mid-point of the +2.0%-3.0% target range for the first time since 2014. The data inspired more sell-side desks to revise their RBA rate-hike calls, with market participants adding hawkish central bank bets. ACGBs took a hit after the release of inflation figures, with 3-year yield hitting its highest point since Apr 2019 amid a growing choir of voices expecting the RBA to scrap their QE programme as soon as next week. Risk-off flows brought the space some reprieve, but bear flattening remains evident in cash Sydney trade. ACGB yields last sit 1.5-7.0bp higher across the curve. Aussie bond futures have ticked away from post-CPI lows, YM last -4.0 & XM -1.5. Bills trade 1-4 ticks lower through the reds.
• T-Notes crept higher, retracing part of their sharp pullback from Monday's NY hours. The contract last operates -0-07 at 128-09+, just shy of best levels of the session. Eurodollar futures trade 1.0-5.0 ticks lower through the reds. Tsy curve has steepened in cash Tokyo trade, with yields last seen +0.6bp to -2.0bp. Conf. Board Consumer Confidence & 5-Year Tsy auction will take focus in the U.S. today.
• JGB futures advanced after an initial spell of mild weakness, which seemed like a follow-through from the move in U.S. Tsys observed in the NY session. JBH2 printed new session highs after the Tokyo lunch break and last sits at 150.99, 6 ticks above previous settlement. The yield curve steepened in cash trade, with the super-long end slipping. Japan's MOF sold Y598.8bn of 40-Year JGBs, with high yield matching the forecast based on BBG dealer poll. Comments from BoJ Gov Kuroda and PM Kishida were shrugged off, as both officials failed to offer much in the way of fresh insights.