Risk-Off Flows Counter Initial Selling Impetus

Overnight impetus weighed on ACGBs in early trade but the sell-off lost momentum as risk sentiment soured. Negative news from China were critical in spoiling the mood.

• Wednesday's hawkish Fed/ECB chatter reverberated in the Asia-Pac session, applying pressure to core FI in morning trading hours.
• Aussie bond futures sold off in early Sydney dealing, taking another leg lower around the Tokyo open, with pressure on core FI space intensifying.
• Worsening risk appetite threw a lifeline to core FI. Aussie bonds stabilised as China's Caixin M'fing PMI printed at 49.5 (versus 50.0 expected), while Australian data proved underwhelming, at least on the surface.
• Australia's capex unexpectedly contracted for the second consecutive quarter in the three months through end-Jun, while home loan values fell to the lowest level in 17 months. We flagged some caveats in earlier bullets, but headline figures disappointed.
• Richening impetus crept in later in the session as China locked down Sichuan's capital city of Chengdu in a bid to contain the local COVID-19 flare-up. The news knocked risk appetite on its head.
• When this is being typed, Aussie bond futures are moving away from earlier lows, with YM last -8.5 & XM -10.0. Bills trade 3-10 ticks lower through the reds. Cash ACGB curve runs steeper, with yields sitting 6.7bp-10.0bp higher.