Up & Down For Bonds In Asia

Early Asia trade saw flow-related regional reaction to Thursday’s NY risk-off price action (a reminder that risk-off moves pared back from their regional extremes as Asia went home on Thursday). Broader price action then flicked to risk-on as a meeting between U.S. Secretary of State Blinken & Russian counterpart Lavrov was confirmed (it will take place next week, providing there is no Russian invasion of Ukraine), which pressured core FI markets. Note that several overnight reports out of Russia pointed to a continued, partial pullback of troops and military equipment from the Ukrainian border.

• TYH2 pushed through its Thursday peak at the re-open, before the confirmation of the aforementioned Blinken-Lavrov meeting weighed. TYH2 -0-02+ at 126-11 as a result, 0-04 off worst levels, operating within a 0-15 range, on ~185K lots. Cashs Tsys sit 1.0-1.5bp cheaper across the curve. Friday’s NY docket will see the release of existing home sales data, as well as Fedspeak from Brainard, Waller, Williams & Evans (Evans is a ’23 voter, while the remainder hold permanent voting status).
• Early outperformance in the super-long end of the JGB curve stuck, even with broader risk appetite flicked back to “on.” Indeed, super-long benchmarks hit the richest levels of the session into the Tokyo close, with 40-Year JGB yields back below 1.00%. A reminder that the Japanese curve has steepened aggressively in recent weeks, with a lack of interest in the super-long end on the part of life insurers apparent, even with super-long yields tapping multi-year highs (note that yesterday’s 20-Year JGB was well-received, which surprised most). Cash JGBs were ~1.0-5.5bp richer on the day, bull flattening. Meanwhile, futures tracked wider risk appetite before moving back towards their early Tokyo peak into the bell, closing +10.
• Aussie bonds marched to the beat of the wider drum, with YM -2.0 & XM down 4.0. A WSJ interview with RBA’s Harper largely stuck to the central RBA thought process i.e. a want to push unemployment lower to foster wage growth & sustainable underlying inflation. Harper also pushed back against market pricing when it comes to RBA rate hikes, pointing to the need for delineation between RBA & U.S. Fed policy given differences in inflation in Australia & the U.S. The latest round of ACGB issuance and the release of next week’s AOFM issuance slate had no tangible impact on the wider space.