US TSYS: Yields Drift Lower

• China’s bond futures are ignoring regional trends and are higher in Tuesday's trading.
• Following the injection of liquidity in the open market operations, the China 10YR bond future is up +0.20 to 107.735.
• The move higher sees the 10YR trade through the 200-day EMA of 107.55 and is approaching the 20-day EMA of 107.77.
• It has not traded above the 20-day EMA since early February.
• China’s 2YR bond future is up also by +0.02 to 102.37 yet remains firmly below all major moving averages, the nearest being the 20-day EMA at 102.44.
• The cash market has rallied also with the CGB 10YR down 2bps today to 1.81%, 7bps lower than the near-term peak of 1.89%.
• Last night the Central Bank unveiled new methodology for the pricing of its 1-year Medium Term Loan facility which is seen as further evidence of the downplaying of its importance over time.
• Markets are now tending to focus more on the daily OMO as evidenced by the strong performance from bond markets today, following the liquidity injection. 

The USD in the G10 space is little changed in the first part of Tuesday dealings. The BBDXY index is above 1272, which is sub recent highs at 1273.15. 

• More action is evident in the EM Asia space so far today, with USD/IDR above 16600, fresh highs back to the Asian Financial Crisis in 1998. USD/CNH has pushed up towards 7.2700 as well.
• This may be weighing on some of the currencies, but aggregate moves are modest so far. NZD/USD is back to 0.5720/25, which is still above recent lows. AUD/USD is in the 0.6285/90 region.
• USD/JPY is back from earlier highs (150.94), last near 150.75/80, little changed versus end Monday levels in NY. The BoJ minutes showed members expressed caution at the January 23-24 meeting, which saw the policy rate increase 25 basis points to 0.50%, with gradual hikes touted as the most preferred path. Yen didn't move much as the minutes headlines crossed. Later on we have Japan Feb Department store sales, typically not a market mover.
• In Australia the FY2026 budget is announced at 1930 AEDT today and is widely expected to show deficits across the forecast horizon and an upward revision to the debt ratio. With an election due by May 17 and 33 days needed between the announcement and the vote, this budget is likely to include numerous sweeteners for voters, with a 6-month extension to the electricity rebate already announced (costing $1.8bn).
• In the cross asset space, US equity futures are down modestly after strong cash gains on Monday. US Tsy yields are also down a touch. 

At the Tokyo lunch break, JGB futures are weaker and session lows, -35 compared to settlement levels.

• (MNI) BoJ board members expressed caution at the January 23-24 meeting, which saw the policy rate increase 25 basis points to 0.50%, with gradual hikes touted as the most preferred path, the published minutes showed Tuesday.
• Members discussed the risk of price expectations exceeding 2% and one suggested a 1% interest rate as desirable in the second half of FY2025. They noted market stability after Trump took office and anticipated that a rate hike would not cause major disruptions. Concerns were raised about US inflation and trade frictions, while rent increases were identified as crucial for underlying inflation.
• “Japanese stocks rebounded, lifted by tech and carmakers after Donald Trump said he may offer tariff breaks, alleviating concerns about the economic impact of his next round of levies.” (per BBG)
• Cash US tsys are slightly richer in today's Asia-Pac session after yesterday's heavy session.
• Cash JGBs are 1-3bps cheaper across benchmarks. The benchmark 10-year yield is 2.7bps higher at 1.572% and just shy of the cycle high of 1.584%.