[MARKET ANALYSIS] T-note futures gradually pulled back after recent bull flattening and as oil prices partially recover

USTs: -3.5 ticks

• Mildly pulled back overnight following the prior day's bull flattening, which had been spurred by sources suggesting that the Treasury could use funds from the Treasury General Account to fund additional buybacks, while prices are also not helped by incoming supply.

Bunds: -10 ticks

• Remains lacklustre after the recent indecisive performance, with participants awaiting German GDP and the ifo Business Climate survey, as well as issuances scheduled for today and tomorrow.

JGBs: -11 ticks

• Demand is subdued as oil prices partially recover and amid expectations for an approaching BoJ rate hike, with former central bank board member Adachi noting the BoJ will probably raise the benchmark interest rate next month, stating that the BoJ is pretty much boxed in, markets have almost fully priced in a hike, and if the BoJ doesn't hike, the yen could weaken sharply.

Overnight reversals after a bull-flattening move typically reflect positioning unwinding rather than fresh information, and here the cited catalysts are incremental: speculation that the Treasury General Account could fund additional buybacks had compressed term premium, and any supply coming onto the tape tends to force a partial give-back of that move. The transmission in these episodes runs from buyback expectations into the belly and long end, so the shape of the pullback matters more than the size, with the curve steepening the tell if the buyback bid is fading. The Bund leg is the routine pre-data stall: German GDP, ifo, and concurrent issuance have historically kept participants sidelined, and ranges into a known data and supply window tend to resolve on the prints rather than before them. JGBs carry the most durable signal, since commentary from a former board member that the BoJ is boxed in aligns with the established pattern in which near-fully-priced hikes leave the risk asymmetric, a hold triggering sharp yen weakness and a sell-off in the short end, a hike passing with little repricing. The BoJ track record in this setup is that officials rarely surprise against a market fully priced in one direction. What bears watching is whether follow-through supply re-opens the buyback discussion and whether any serving official echoes the boxed-in framing before the meeting.