AUSSIE BONDS: Little Changed On A Subdued Data-Light Session

At the Tokyo lunch break, JGB futures are slightly weaker, -3 compared to the settlement levels.

• “Japan's sovereign debt market is flashing a warning to the central bank to be cautious when dialing back its bond purchases, as investors are shunning government debt auctions and yields are soaring. The market is particularly concerned about longer-maturity debt, which has been dependent on purchases from large Japanese institutions, and the upcoming sale of 40-year bonds on May 28 may test the market further.” (per BBG)
• “Long-dated Japanese government bonds saw little relief on Wednesday after a poor auction result sent yields to record levels and as more debt sales loomed in the weeks ahead. The selloff in bonds is a quandary for the Bank of Japan, which is trying to taper its debt purchases and normalise monetary policy. Rising long-term borrowing costs are also a warning sign for the highly indebted Japanese government.” (per RTRS)
• Cash US tsys have extended yesterday's bear-steepener, with yields flat to 2bps higher, in today's Asia-Pac session.
• Cash JGBs have bear-steepened across benchmarks, with yields flat to 6bps higher. The benchmark 20-year yield is 3.8bps higher at 2.575% after yesterday’s poor auction.
• Swap rates are flat to 6bps higher, with a steeper curve. 

• Bond futures are doing very little in China today as the Central Bank injected liquidity via the OMO.  
• The 10YR future is lower by just -.01 at 108.82 and remains just below the 20-day EMA of 108.86.  The 50-day EMA is at 108.71
• The 2YR future is unchanged from last night's close of 102.37 and remains well below all major moving averages.  The 20-day EMA is at 102.49.
• Unsurprisingly bonds are doing very little with the CGB 10YR unchanged at 1.66%
• People’s Bank of China Governor Pan spoke at a conference on Monday where he reiterated that China's monetary policy will remain loose.
• Pan indicated that he intends to utilize existing policies to improve the quality and efficiency of financial support for the real economy with focus on strengthening support for key areas like technological innovation, boosting consumption, and stabilizing foreign trade.

The USD remains under pressure in the G10 space, with safe havens outperforming at the margins in Wednesday trade to date. USD/CHF is back to 0.8230, up 0.65% in CHF terms, continuing Tuesday's outperformance trend for the Swiss Franc. This puts 0.8200 back in focus, with dips in this pair sub this level supported so far in May. USD/JPY is back under 144.00 for the first time since May 8. 

• There doesn't appear to be a fresh catalyst for today's move, other than a continuation of trends from Tuesday. Lower US equity futures (off 0.25-0.30%), may be aiding the safe havens at the margin. US Tsy yields are holding up at this stage, led by the back end of the curve, 10yr above 4.50%, 20yr near 5.02%.
• The broader BBDXY index is down around 0.30%, last near 1219. As we noted earlier, a close back below 1220 and the focus will return once more back to the lows for the index (1216 handle in earlier May, 1212 in April).
• EUR/USD is up 0.35% to 1.1320/25, while AUD and NZD are +0.20-0.25% higher, but remain within recent ranges.
• USD/Asia pairs are mostly lower, although USD/CNH lags these moves, still above 7.2000 at this stage.