U.S. 2-/10-Yr Tsy Yield Spread Nears Zero, Super-Long End Leads JGB Curve Steepening

Regional reaction to above-forecast U.S. CPI figures released after hours Friday applied further pressure to core FI space, with participants adding hawkish FOMC bets. Benchmark futures contracts extended losses despite risk-negative COVID-19 headlines out of China, where Beijing and Shanghai unwound some of their recent re-opening on the back of rising case counts.

• T-Notes extended their post-CPI sell-off and last trade -0-11+ at 116-14+, hovering near session lows, with Eurodollar futures running 3.0-19.5 ticks lower through the reds. Cash Tsy curve bear flattened, with 2-Year yield last 10bp higher. U.S. 2-Year/10-Year Tsy yield spread faltered towards zero, raising the prospect of an imminent yield curve inversion. Comments from Fed's Brainard (she will speak on the Community Reinvestment Act) take focus from here, while Wednesday's FOMC monetary policy decision headlines the local docket for the week.
• JGB futures softened as regional players caught up with U.S. consumer inflation data published after Asia hours Friday. JBU2 last changes hands at 148.51, down 50 ticks from previous settlement, close to session lows. Cash curve bear steepened, with the super-long end leading declines. Cheapening impetus is putting the BoJ's YCC framework to a test, with 10-Year yield trading close to the 0.25% ceiling. With the 10-Year/30-Year spread widening to multi-year highs, some are suggesting that the BoJ could buy longer-dated debt to step up enforcement of the YCC. The Bank is due to wrap up its monetary policy meeting on Friday.
• Australian financial markets were closed in observance of a public holiday.