Tsys Drag Core FI Lower As Post-FOMC Mins Move Extends

Tsys extended on their post-Dec FOMC meeting minute weakness during Asia-Pac hours as the curve bear flattened, with the major cash Tsy benchmarks running 1.5-3.0bp cheaper into European hours. All of the major U.S. Tsy yield benchmarks have moved above their respective Wednesday peaks. Headline flow remained light, with regional follow through from the release of the FOMC minutes outweighing early dip buying & support from lower equity markets (with the resumption of the cheapening move in Tsys eventually fuelling further equity weakness). Regional COVID worry failed to facilitate meaningful support (participants are more at ease, given the apparent diminished severity that the Omicron strain offers), while stronger than expected Caixin services PMI data didn’t seem to provide any notable market reaction. On the flow side, a burst of TY screen selling added to the broader weakness, while downside exposure was sought via a block buy of TYG2 128.50 puts (+5K). The ISM services survey tops the NY docket. Thursday’s Fedspeak will consist of addresses from St. Louis Fed President Bullard (’22 voter) & San Francisco Fed President Daly (’24 voter).

• The second burst of Tsy weakness weighed on JGB futures, after the weakness in the Nikkei 225 provided some relief. That allowed the contract to take out its early Tokyo lows, ending the day at worst levels, -30. The major cash JGB benchmarks are flat to ~2bp cheaper at typing, with the 7- to 20-Year zone leading the weakness. Cash 10-Year JGB yields have moved above 0.10%, printing at the highest level since early November in the process (0.121% provides the next point of technical resistance on that front). The BoJ continued to administer JGB repo operations as it looks to manage cash and collateral levels in the system. The latest round of BoJ Rinban operations drew the following offer/cover ratios: 1- to 3-Year: 2.41x (prev. 3.01x), 3- to 5-Year: 3.28x (prev. 2.10x), 10- to 25-Year: 3.19x (prev. 3.27x).
• The Aussie bond space remained happy to track broader gyrations, with a lack of meaningful domestic news flow evident. YM was 5.5 cheaper, with XM 8.0 worse off come the bell. The 7- to 12-Year zone provided the weak point on the cash ACGB curve.