U.S. 5-/30-Year Yield Spread Inverts, BoJ Defends 10-Year Band, Twice

Asia-Pac dealing saw core fixed income markets move lower, although there was some brief, limited respite for bulls during early Asia trade (perhaps on some worry surrounding U.S. President Biden’s apparent weekend faux pas, as some of his comments alluded to a desire for regime change in Russia. Note this idea was quickly rowed back by the White House).

• Ultimately, U.S. Tsys continued to cheapen, with TYM2 through Friday’s low, last dealing -0-10+ at 121-07 (next support is seen at the Jan 18 ’19 low, 121-02), with the contract 0-03 off the base of its 0-24+ range, operating on nearly 190K lots. Cash Tsys are 5-10bp cheaper on the session, with 2s leading the way lower. Note that the 5-/30-Year yield spread has inverted for the first time since ’06. Factors helping the cheapening included a move lower in crude oil prices (owing to a two-stage lockdown in China’s Shanghai), some “decent sized” payside flows in U.S. swaps (per market contacts), spill over from JGBs, a truncated U.S. Tsy supply schedule and regional reaction to Friday’s cheapening. Looking ahead, NY hours will bring advance goods trade data, inventory readings and the latest Dallas Fed m’fing activity print. Meanwhile, 2- & 5-Year Tsy auctions headline on the supply front. Elsewhere, the latest Russia-Ukraine summit in Turkey will garner interest, although there is little in the way of expectations re: a meaningful breakthrough between the two nations.
• The move higher in core global fixed income markets has resulted in the BoJ having to defend the upper end of its permitted 10-Year JGB yield trading band. Note that 10-Year JGB yields have had an incremental look above the upper limit of the BoJ’s permitted trading band, resulting in a second round of BoJ buying interest via fixed rate operations after the initial fixed rate operations drew no offers to sell from market participants (we await results of the second round of operations). JGB futures are -24 on the day, after registering another fresh cycle low. Meanwhile, the curve has bear steepened, with 40s running nearly 5bp cheaper on the day (some concession ahead of tomorrow’s 40-Year JGB auction is apparent).
• It was another session of tracking the wider impetus for the Aussie bond space. That leaves YM -18.0 and XM -13.5, with the former shunting lower into the close. Bills run 5-24 ticks lower through the reds. Note that the ruling Australian coalition will cut the fuel excise duty and support first time buyers re: the housing market when it hands down the latest Federal Budget on Tuesday.