Core fixed income markets have drifted away from their early Asia highs, with a lack of headline catalysts observed. U.S. Tsy futures are now back to near enough unchanged levels vs. settlement across the curve, while the major cash benchmarks run somewhere in the region of 1-2bp cheaper on the session, with the front end leading the way lower. We haven’t seen much in the way of major headline flow to drive the move and e-minis are holding lower. Perhaps it is a case of some regional participants being a little less concerned re: the previously touted Pentagon worry surrounding the potential for Russia President Putin to make nuclear threats if the Ukraine conflict drags on. The start of the re-opening of factory production in China’s Shenzhen, in addition to subway services (at least across 5 districts that have achieved “COVID zero”) may also be feeding into price action.
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After the release of December’s TIC flow data, J.P.Morgan note that “foreign investors bought $44.2bn long-term Treasuries over the month. Private institutions once again drove this flow, adding $53.3bn Treasuries, a step down from the previous month’s record pace but well above the 6-month average. Meanwhile official institutions sold $9.7bn, close to the average pace observed recently. Geographically, EM countries shed Treasuries over December, while the strongest buying came from the Cayman Islands - the country added $39.3bn in December, the largest monthly purchase since May 2018, likely representing short covering from the levered investor community, following $162bn of sales over the first 11 months of the year. Recall that the Cayman Islands has relatively low foreign exchange reserves and many hedge funds are domiciled there.”