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U.S. Tsys & ACGBs Go Offered, JGBs Wobbly Ahead Of BoJ Meeting

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Friday's upswing in U.S. Tsy yields spilled over into Asia in early trade, before the spotlight shifted to China, whose central bank cut the interest rates applied to 1-year MLF and 7-day reverse repo operations in a bid to stimulate economic growth. While speculation of imminent policy easing had been doing the rounds, the consensus view had been that the PBOC would leave these parameters unchanged today. Their moves came shortly before the release of China's Q4 GDP & December economic activity data, with the slowdown in growth proving less severe than forecast. The impact of Chinese goings-on may have helped prevent a recovery in U.S. Tsys & ACGBs after their initial spell of weakness.

  • T-Notes extended their Friday rout before finding support at 127-20+ and stabilising in the Tokyo afternoon. TYH2 last changes hands -0-14 at 127-24. Eurodollar futures run 0.25-3.00 ticks lower through the reds. Cash Tsy markets won't re-open until Tuesday, as the U.S. observes a national holiday today.
  • Cash ACGB yields sit 5.5-6.7bp higher across the curve, with bear steepening evident, albeit less pronounced than earlier in the session. Aussie bond futures have ticked away from lows but remain at depressed levels, YM -5.5 & XM -6.5. Bills trade 1-8 ticks lower through the reds. The Australian headline flow failed to offer much in the way of market catalysts, with initial price action seemingly driven by impetus from Friday's after-hours moves in U.S. Tsys.
  • The Tokyo session saw somewhat erratic price action of JGBs, with participants preparing for the upcoming monetary policy decision from the BoJ. Policymakers will make their announcement on Tuesday and are expected to raise the FY2022 CPI forecast a tad, with potential for hawkish (by BoJ standards) tweaks in the language surrounding risks to the price outlook. Benchmark JGB futures rose after the re-open, topped out at 150.86 and retreated from there, extending their pullback after the lunch break. The contract sits at 150.79, 1 tick shy of previous settlement and off the session low of 150.73 printed in the wake of the aforementioned pullback. Cash JGB yields are mixed across the curve, with 10s outperforming. Another missile test conducted by North Korea, reports flagging potential for tighter Covid curbs in several Japanese prefectures and the proximity of a key policy speech from PM Kishida helped complicate the underlying risk environment.

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