Tight Ranges In Play Ahead Of FOMC, Pozsar Plumbing Note In Focus

T-Notes were once again confined to a tight 0-03+ range in Asia-Pac hours, with the contract last +0-00+ at 139-16+, while cash yields unchanged to 0.5bp richer across the curve. U.S. President Trump continues to push his bullish views on the COVID-19 vaccine front, but there was little in the way of meaningful tier 1 news flow. EDZ0 witnessed some outperformance in the strip, with the contract last +1.0 on solid volume. This is being tied to a note from influential funding market watcher Zoltan Pozsar of Credit Suisse, who has suggested that "with the Fed's standing repo and FX swap facilities, any funding pressure coming from balance sheet constraints will be capped at IOR + 5bps and OIS + 25 bps, respectively, for what will likely be a muted year-end turn in funding markets." Pozsar had previously warned of the potential for "a year-end turn much worse than what's currently being priced by the market - unless U.S. banks with lower G-SIB scores or foreign banks pick up the slack." His change of tact comes in the wake of comments made by the J.P.Morgan CFO at a Barclays conference, which revealed that the bank will run at a 4.0% G-SIB surcharge at year-end, up from 3.5% last year, avoiding a bigger jump. Pozsar noted that "this bit of information suggests that funding market volatility at year-end will be low, as the bottlenecks that usually drive such volatility - G-SIB score inflation and banks' efforts to counter them by shrinking their market making activities - won't be present in the FX swap market and bank funding markets this year."

• JGB futures continued to struggle for any meaningful traction above 152.00, with the contract just above that level, +2 at typing. Yields sit little changed across the curve, with light outperformance in the front end. The BoJ left the size of its 1-10 Year Rinban operations unchanged, with the breakdown of each bucket as follows: 1-3 Year: Offer cover 3.77x (prev. 1.65x), Yield Spread -0.002 (prev. -0.010), Average Spread 0.000 (prev. -0.001). 3-5 Year: Offer cover 2.73x (prev. 2.63x), Yield Spread -0.006 (prev. -0.005), Average Spread -0.004 (prev. -0.004) 5-10 Year: Offer cover 2.21x (prev. 2.63x), Yield Spread -0.004 (prev. -0.007), Average Spread -0.001 (prev. -0.005). The normalisation of the 1-3 Year cover didn't provide any notable headwinds for 2s.
• In Australia, YM & XM sit ~1.0 tick firmer vs. settlement after holding a tight range during Sydney hours. The latest round of ACGB '31 supply was well received, and the RBA refrained from purchasing ACGBs when the latest window opened earlier today. Bills unchanged to -1 through the reds.