U.S. Tsys Outperform On Tech-Led E-Mini Weakness

Some weakness in the e-mini space, led by the NASDAQ in the wake of Amazon earnings & guidance, has provided some support for Tsys overnight. A downtick for some of the large Chinese tech equity names also helped the bid. T-Notes last print +0-05 at 134-12, which represents bests levels of the day, on volume of ~120K. The cash Tsy space has bull flattened, with the short-end of the curve ~0.5bp richer on the day, while 5+-Year paper prints ~2.0bp richer, unwinding some of yesterday's bear flattening. 2x 6.0K screen lifts of TYU1 (each equating to $490 DV01 equivalent) headlined on the flow side. Friday's U.S. docket is headlined by PCE data and the latest MNI Chicago PMI reading. Elsewhere, St. Louis Fed President Bullard ('22 voter) will speak on the economy.

• JGB futures gave back their overnight session outperformance, given the cheapening witnessed in U.S. Tsys on Thursday and lack of surprises surrounding the previously flagged COVID state of emergency speculation and subsequent announcements from policymakers. Still, the broader defensive feel evident during Asia-Pac trade likely limited the weakness, with futures -5 at typing. The major cash JGB benchmarks are virtually unchanged across the curve.
• It was a relatively sedate session for Aussie bonds, which struggled to find a bid even with the uptick witnessed in the U.S. Tsy space. YM -1.5, XM -3.5, while cash ACGB trade has seen some steepening, leaving long end paper ~4.0bp cheaper on the day. The A$700mn tap of ACGB 2.75% 21 Nov '27 was smoothly digested, with the weighted average yield printing 0.41bp through prevailing mids at the time of supply (per Yieldbroker), while the cover ratio comfortably topped 5.00x. The previous tap of the line was conducted way back in '18, at a much smaller size and under a different market regime, so any comparisons would be misleading. The pricing through mids may not have been quite as aggressive as some anticipated, but the rarity in terms of taps of the line, market outlook re: the RBA, liquidity dynamic, international appeal and potential demand from dealers identified via AOFM liaison (all of which were flagged ahead of the auction) provided smooth passage despite the recent richening in both outright terms & in the form of belly outperformance. The weekly AOFM issuance slate offered no surprises. Meanwhile, the NSW daily COVID case count ticked back below 200, pulling back from the record high printed earlier this week. Private sector credit data was firmer than expected.