U.S. Tsys Off Lows, JGBs Unwind Overnight Losses

The space has firmed after T-Notes had a brief and shallow look through Tuesday's low, with that particular contract now +0-04 on the day, printing 133-03+, a touch shy of best levels. The major cash Tsy benchmarks run unch. to 2.0bp richer across the curve. There was little in the way of overt headline flow to trigger the shunt higher. More recently, headlines have crossed the wires noting that Democrats on the Senate Budget Committee have reached an agreement on a $3.5tn fiscal plan, which aims to advance President Biden's Jobs & families initiative without support from the GOP. Overnight flow was dominated by the TYU1 133/132 1x2 put spread which saw ~15K lifted on screen.

• JGB futures have unwound their overnight losses alongside a modest bid in the U.S. Tsy space, with the contract now +2 on the day. Cash JGB trade sees the major benchmark yields print unchanged to 1.0bp lower. Local headline flow remains light. The latest round of BoJ Rinban operations (covering 1- to 10-Year and 25+ Year JGBs) saw steady to lower offer to cover ratios which will have offered some incremental support during afternoon trade. The BoJ's two-day policy meeting gets underway on Thursday. Elsewhere, Thursday will provide the latest liquidity enhancement auction covering off-the-run JGBS with 1- to 5-Years until maturity.
• There was nothing in the way of notable trans-Tasman impetus for ACGBs in the wake of the latest monetary policy decision from the RBNZ, with the stark divergence between the RBNZ & RBA punctuated by the RBNZ's move to declare a halt to its LSAP scheme come the end of next week, while the NZ OIS strip now prices a 65% chance of a rate hike at the end of the RBNZ's August meeting (given the Bank's new least regrets train of thought). Fresh multi-year lows for the Australia/NZ 2-Year swap spread were printed in the process. YM -3.5 & XM -2.5 at typing, with the contracts underwater for the entirety of the Sydney session after struggling overnight. In terms of local news, the Sydney lockdown was extended by 2 weeks, until at least July 30 (most expect a further extension to kick in then), while a handful of new COVID cases were detected in Melbourne. Thursday will bring the latest round scheduled ACGB purchases from the RBA, as well as the latest local monthly labour market report.