US TSYS: Marginally Cheaper In Asia

TYH3 deals at 114-07, +0-07, a touch off the top of its 0-08+ range on volume of ~71K.

• Cash Tsys have bull flattened, dealing 2-4bp firmer across the major benchmarks.
• Tsys firmed in early trade as Asia-Pac participants seemingly paid more attention to the well-received 3-Year Tsy auction results and lack of fresh monetary policy steer from Fed Chair Powell, fading Tuesdays issuance-driven cheapening.
• Potential for easing of PBoCs monetary policy in H1 2023, via RRR and LPR cuts, in a bid to ensure “reasonably abundant liquidity” and lower financing costs for the real economy and property sector (via analysts commenting in a major state-run media outlet), may also have aided the bid at the margin.
• Tsys saw some brief pressure as weakness in Australian FI after stronger than expected Australian CPI and Retail Sales prints spilled over into the wider space, before paring losses.
• The richening marginally extended late in the session as the USD unwound its modest gains to trade softer.
• We have a thin docket in Europe today, further out MBA Mortgage Applications provides the only domestic data point of note. Participants will have one eye on the Dec CPI print tomorrow (see our full preview of the CPI release here). On the supply side we have the latest 10-Year auction.

JGB futures pull away from best levels to print -15 ahead of the bell. There hasn’t been much in the way of meaningful headline flow to tout, with ex-BoJ board member Shirai pointing to the benefits of a more flexible inflation target (a matter that is already being considered by the BoJ and government, per recent press reports), while suggesting that a fundamental shift in monetary policy is unlikely, stressing that the recent YCC tweak was based on promoting sustainable monetary policy.

• Cash JGBs sit 0.5-4.5bp richer across the curve, with the long end leading and intermediates lagging.
• A fairly well-received round of 30-Year JGB supply, coupled with a bounce from Tuesday’s lows in U.S. Tsys and an unscheduled round of 1- to 25+-Year BoJ Rinban purchases (in addition to unscheduled fixed rate 1- to 5-Year JGB purchases) helped support JGBs before the aforementioned pullback in futures into the close.
• That came after news that the Japanese MoF is looking at extending the average duration of JGBs on issue, coupled with pre-auction concession promoted some twist steepening of the curve in the Tokyo morning.
• Looking ahead, BoP data & BoJ Rinban purchases headline domestically on Thursday.

• RES 4: 106.118 50.0% retracement of the Dec 2 - Jan 2 bear leg
• RES 3: 106.000 Round number resistance
• RES 2: 105.939 38.2% retracement of the Dec 2 - Jan 2 bear leg
• RES 1: 105.817/830 20-day EMA / High Jan 6
• PRICE: 105.700 @ 05:41 GMT Jan 11
• SUP 1: 105.560 Low Jan 6
• SUP 2: 105.360 Low Jan 2 and the bear trigger
• SUP 3: 105.345 2.618 projection of the Dec 2 - 13 price swing
• SUP 4: 105.270 2.764 projection of the Dec 2 - 13 price swing

Schatz futures traded higher last week and the contract remains closer to its recent highs. 105.817 marks a firm resistance, the 20-day EMA - a break would strengthen short-term bullish conditions. The latest recovery is considered corrective - for now. A reversal lower would refocus attention on 105.360, the Jan 2 trend low and bear trigger. Clearance of this support would confirm a resumption of the broader downtrend.