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Treasuries took another leg higher overnight w/ escalating geopolitical risks. 10s hit 4.55% amid jittery conditions bull flattening the curve. Long end EGB supply as well as gilts were absorbed easily as long end traded well helped by two FVUS block flatteners overnight. Duration came off local highs as NY came in and proceeded to bear flatten on PPI beat (0.5% vs 0.3 exp). No new guidance out of minutes with limited mkt reaction as focus shifts toward CPI tomorrow ahead of 30y reopening. Flows were mixed but skewed towards better selling with RM selling 5s, CB selling 10s, and RM selling 30s. Pretty impressive long end reversal as 5s30s curve re-flattened to 12bps. Certainly difficult to handicap situation in the Middle East, but question is how sustainable is this re-rally once dust settles and in our view would require fundamental weakness to justify these levels.

In China IG, dealer driven squeeze in high beta TMT space has been the main theme but market has come off the tights in the afternoon. Names like WB is about 8bps tighter while Market sees some RM selling after the squeeze. Other parts of the TMT space were about 1-5bps tighter into the close. Rest of the space has actually been quiet, with locals selling stuff on back of rates move. Huarong Intl further repurchased USD101.208m 3.375% 30s, USD52.5m 3.625% 30s, and USD32.946m 5.5% 47s; company will continue to monitor market conditions and may make further repurchases in the open market. Agile Group Holdings is planning to sell a commercial complex in Shanghai for more than RMB6b. 

In China HY, strong day in performing HY, weak day in stressed HY such as China property, rates and equities impact leading to some FOMO buying in the RM and HF community alike for Macau, spreads recovering alongside rates with the space 0.5-1pt higher. Similarly in industrials, market is seeing buying on select lines from stimulus boost, bonds up 0.5pts. China property continue to see RM sell flows continue with onshore trading down in pockets as well, sell flows lightening from yesterday but still persisting, bonds down 0.5-1.5pts. Moody's downgraded Ping An Real Estate and Pingan Real Estate Capital; bonds cut to Ba2 from Baa3; changes outlooks to negative from review for downgrade. 

In Sovereigns, a quieter day with more frantic street prints than actual investor flows taking bonds +/- 2bps in terms of spreads. In Frontiers, SRILAN/MONGOL traded 0.25-0.5pt higher. In IG, spreads mostly unchanged after initially opening about 1bp tighter. Strength is not well supported given the selling interest from RM investors although the larger enquiries are mostly front ends coupled with the afternoon Israel-Lebanon headlines. Otherwise, there has been some down prints on street (EXIMBK/BBLTB/TOPTB). In HY, pretty much a continuation of yesterday with non-China benchmarks broadly unchanged after opening a touch higher initially. VEDLN outperformed and marked up 1pt with two-way interests among the unsecured bonds, secured bonds were a bit quiet. Adani about 0.25-0.5pt lower after headlines on SEBI looking into the group’s ties with Gulf Asia Fund although nothing really traded.  

AT1s closed the day 0.5-1pt higher after a very balanced start from Asian flow, demand from European and UK investors for the lowest cash price paper, supported by the rally in rates, led to a decent move higher again. Flows do remain quite balanced overall – cash is definitely still a constraint – however the sentiment is positive. The recent euro deals squeezed hardest while at-the-money USD paper started to look heavy through the afternoon – probably linked to supply expectations. The average CoD was +0.375pt and, while yesterday seemed grabby, it does feel like a more sustainable move better.