U.S. Tsys Bear Flatten, Aussie Bonds Spike Higher At Futures Close

Atlanta Fed President Bostic alluded to the risks of a swifter pace of rate hikes over the weekend (but stuck to his baseline call of 3 hikes in ’22), this, combined with a more hawkish Fed call from Goldman Sachs (looking for 5x 25bp hikes in ’22 vs. 4x prev.) applied some bear flattening pressure to cash Tsys overnight. Participants seemed to look through the continued geopolitical tension surrounding Russia. Still, the Lunar New Year holiday period curtailed broader activity, with TYH2 sticking to the 0-05 range established early on, last -0-03+ at 127-27. Cash Tsys run 1.5-3.5bp cheaper across the curve. TUH2 block activity headlined on the flow front in Asia (with price action pointing to a 6K block buy being followed up with a 6K block sale). Looking ahead, NY hours will see the release of the latest MNI Chicago PMI reading, in addition to the Dallas Fed manufacturing activity print. Meanwhile, Fedspeak will come from Kansas City Fed President George (’22 voter) & San Francisco Fed President Daly (’24 voter)

• 10-Year JGB yields ticked higher in early afternoon trade, topping 0.180%, hitting the highest level since early ’16 in the process. There wasn’t an outright trigger for the move, outside of technical breaks in both 10-Year JGB yields and JGB futures, although the space pared the move as we worked towards the Tokyo close. That left futures -5 at the bell, while cash JGBs were little changed to ~2.5bp cheaper, as the super-long end led the weakness.
• In the ACGB space, it looked like pre-RBA short covering came to the fore at the bond futures close, with YM spiking higher, making fresh session highs. That left the contract +10.0 at settlement, while XM was +4.5. ACGBs outperformed during Asia trade, with incumbent PM Morrison struggling in the polls (although he just about retained his preferred PM status in the most recent Newspoll offering) and some pre-RBA caution supporting the space for much of Sydney trade. The spike higher in YM also supported the IR strip into the bell.