WALLER: NOT SEEING NEED FOR FURTHER RATE HIKES

ACGBs (YM -2.0 & XM -3.0) are cheaper after US tsys resumed their sell-off following a brief reprieve on Friday. US tsys finished the NY session with yields 2-4bps higher amid a flood of new corporate bonds and US tsy issuance. The 2- and 5-year tsy auctions both tailed.

• According to MNI’s technicals team, the trend direction in 10-year tsy futures remains down with the TYH4 contract trading close to its recent lows. Price has pierced 109-17, 50.0% of the Oct - Dec bull cycle. A clear break of this retracement would strengthen the bearish condition and signal scope for an extension towards 108-19+, the 61.8% Fibonacci level.
• The S&P 500 finished Monday down 0.4%. Goldman Sachs’ Mariotti said “All in all, while a resilient macroeconomic picture and a positive earnings season in the US have continued to support the bullish sentiment backdrop, investors are generally exposed to concentrated positions.” (AFR)
• Cash ACGBs are 1-3bps cheaper with the AU-US 10-year yield differential 2bp lower at -15bps.
• Swap rates are 1-3bps higher, with the 3s10s curve steeper.
• The bills strip is cheaper, with pricing -1 to -3.
• RBA-dated OIS pricing is flat to 2bps firmer, with meetings beyond June leading.
• Today, the local calendar is empty, ahead of January CPI tomorrow.

USD/CNH pushed above 7.2100 by the NY session, with a firmer US yield backdrop aiding the move. We didn't breach highs from last Friday though, which came in just above 7.2140. For onshore spot we ended yesterday at 7.1975, so a decent wedge with respect to CNH levels. The CNY NEER (J.P. Morgan index) edged down slightly to 124.5.

• Yield differentials continue to track in favor of the USD, the 2yr spread back to +267bps, levels last seen in Nov last year. China's 2yr government bond yield sits at 2.05%, just above recent lows, while the 10yr has fallen sub 2.40%, fresh cyclical lows.
• Wider yield differentials against the US and EU are a factor behind corporates to keep more offshore earnings in foreign currency. Reuters noted that Jan saw a record month for bank purchases of dollars via swaps from clients (see this link for more details).
• In the equity space, we finished lower for mainland stocks yesterday, amid modest northbound stock connect outflows. The Golden Dragon index rose 0.74% in US trade though, the fourth straight session of gains.
• News flow is focused on government efforts to boost the private sector, while President Xi called for improving the momentum of the economic recovery late yesterday (see this link).
• The local data calendar remains empty today.