US TSYS: Back The Other Way
U.S. Tsys trade back the other way and now sit 1-2bp richer across the curve in cash trade, with intermediates lagging on the rally after leading the early downtick. TYZ2 has registered a fresh session high on the move but hasn’t got close to challenging Tuesday’s peak as of yet.
- There hasn’t been an overt headline trigger crossing the broader wires to generate such a move, although an article from the Chinese press is doing the rounds, which sees analysts flagging the potential for another cut in the Chinese 5-Year LPR fixing before year-end (in what would be another counter-cyclical policy move to support the property market). This may have provided some incremental support.
- Elsewhere, there has been confirmation of earlier reports that G7 leaders will convene in Bali (the site of the ongoing G20 meeting) to discuss the Russia-Poland missile situation.
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AUSSIE BONDS: Early Weakness Moderates On Wider Matters
ACGBs trade away from worst levels, aided by the bid in U.S. Tsys, as the initial impact of the overnight session cheapening and domestic fiscal matters has waned, with broader market themes (read hope surrounding a firmer fiscal footing for the UK) seeing the space away from worst levels.
- That leaves YM -2.5 & XM -5.5, with wider cash ACGB trade seeing 3-5bp of cheapening.
- EFPs are a touch narrower, with light flattening of the 3-/10-Year EFP box observed.
- Bills run 1-4bp cheaper through the reds.
AUD: A$ Correlations - Global Equities Still Holding Sway
AUD/USD correlations are mostly lower in terms of traditional macro drivers. The table below presents the 1 week and 1-month correlations in levels terms between the A$ and a number of macro variables.
- For yield spreads, correlations are down a touch compared to early October, particularly at the front end. The general trend in spreads has been to move against the AUD, albeit at a reasonable pace, rather than a dramatic move in recent weeks. The 2yr AU-US spread sits a little wider than -100bps today, while the 10yr spread is just above 0bps.
- Correlations with commodity prices are elevated for the past week, but down noticeably over the past month. This likely owes to lower AUD/USD levels over this period, but greater resilience in the commodity space (i.e. not as weak as the A$ over this period).
- Correlations with global equities are down over the past week, but strong for the past month. Likewise, for the VIX correlation, although less so in the past week for this variable.
Table 1: AUD/USD Correlations
| 1wk | 1mth | |
| 2yr yield differential | 0.13 | 0.61 |
| 5yr yield differential | 0.32 | 0.61 |
| 10yr yield differential | 0.62 | 0.33 |
| Global commodity prices | 0.92 | 0.25 |
| Base metals | 0.50 | 0.51 |
| Iron ore | -0.14 | 0.46 |
| Global equities | 0.51 | 0.85 |
| US VIX index | 0.20 | -0.90 |
Source: MNI - Market News/Bloomberg
JGBS: A Touch Cheaper To Start The Week
JGB futures operate around late overnight levels in early Tokyo dealing, a little above the base seen in the final overnight session of last week, last -12.
- There wasn’t much in the way of a cross-market bid from the space, given UK fiscal hope after weekend comments from new UK C’llr Hunt.
- Wider cash JGB trade sees the major benchmarks running flat to 1.5bp cheaper, with 7s struggling on the downtick in futures witnessed since Friday’s settlement and 20s providing the weakest point further out the curve.
- Domestic headline flow remains limited, with top FX diplomat Kanda and Finance Minister Suzuki reiterating their weekend comments re: FX matters.
