AUSSIE BONDS: Sharply Cheaper Following Less Dovish FOMC

• MNI JAPAN FEB JOBLESS RATE FALLS TO 2.6% FROM JAN 2.7%

Global gas prices have come off March highs in the second half of the month on hopes of an end to hostilities that have shut in Qatar’s LNG shipments and destroyed some capacity. European markets were more nervous on Monday after US President Trump threatened to not only destroy Iran’s power plants but also oil wells and Kharg Island’s oil export and storage facilities if the Strait of Hormuz isn’t imminently reopened. He also said that the war should take 6 weeks in total implying it should be finished in under two.

• European prices rose 1% to EUR 54.70 on Monday over Middle East uncertainty and are now up over 70% this month but off the peak of EUR 74.00. On March 2 they reached a low of EUR 37.96. The rally was capped due to robust flows from Norway, its main supplier, and increased wind-power generation, according to Bloomberg.
• The focus remains on the region’s ability to rebuild inventories ahead of next winter given the increased competition for global supplies created by the Iran War, which a hot Asian summer would worsen.
• Current gas disruptions have been exacerbated by the cyclone-damaged Chevron Wheatstone LNG facility in northwestern Australia, which is not expected to be fully functioning for several weeks.
• US gas prices fell sharply on Monday driven by strong flows and forecasts for above-average temperatures in the east going into the start of April. They were down 4.6% to $2.886 to be flat in March. They reached a high of $3.488 on 9 March but trended lower since falling to $2.825.
• US lower-48 gas production rose 5.4% y/y on Monday and estimated flows to LNG export facilities increased 2.9% w/w (BNEF data). US output remains strong and flows for LNG have increased since the start of the Iran War.

A strong overnight rally in US Treasuries saw a major shift in market focus from inflation fear to growth panic regarding the Middle East conflict.

Tsys gained earlier in a delayed response to Fed Chairman Powell discussing current risks to both side of dual mandate while holding to opinion that policy is in a good position to be patient.  "I think a situation like the present situation where there's sort of downside risk to the labor market, which suggests keep rates low, but there's upside risk to inflation, which suggests maybe don't keep rates low, you've got tension between the two objectives," Powell said.

NY Fed President Williams (leans dovish, permanent FOMC voter) appears to echo Chair Powell's commentary earlier in the day in saying policy is well-positioned, while noting risks to both elements of the dual mandate.  

Projected rate moves reverse rate hike pricing, latest vs. late Friday lvls (*): Apr'26 at 0.8bp (+1bp), Jun'26 at -0.3bp (+2.1bp), Jul'26 at -0.7bp (+2.5bp), Sep'26 at -0.3bp (+5.8bp), Oct'26 -0.2bp (+7.3bp).

The Dallas Fed's Texas Manufacturing Outlook Survey showed a pullback in activity in March, bucking the trend of stronger readings across other regional Fed reports.

• The 2-Yr is down -8.2bps at 3.832%
• The 5-Yr is down -8.6bps at 3.986%
• The 10-Yr is down -8bps at 4.352%
• The 30-Yr is down -5.2bps at 4.915%

US bond futures have opened marginally softer with TYM6 down -02+ at 110-23+