JGBS AUCTION: 10-Year JGB Auction Results

NZGB yields have shown a steepening bias as Monday's session has unfolded, consistent with US and JGB moves. The 2/10s curve was last +150bps, close to fresh highs since April of this year. Local news flows has been light, with all eyes on the RBNZ outcome this Wednesday.  While it is widely expected to cut rates further, economists are split between a 25bp and 50bp move. 10 out of the 25 analysts surveyed by Bloomberg are forecasting the larger reduction. The announcement won’t be accompanied by updated forecasts or a press conference (they are scheduled for November), but post-meeting speaking events should be announced this week.

• The 2yr swap rate is holding under 2.50%, so near recent cycle lows. A more dovish RBNZ this week is likely to see the market target a move into the 2.00-2.25% region. Moves back towards 2.75% may be faded on any hawkish surprise. The bias around 2yr swap still appears skewed lower until NZ growth is on a firmer footing. Market pricing per OIS RBNZ dated contracts show an implied rate of 2.67% for Wednesday's meeting, versus the current policy rate of 3.00% (so around 131% of a 25bps moved priced in), whilst the terminal rate into 2026 sits close to 2.25%, which is where we have been close to in recent weeks.
• The 2yr government bond yield was last around 2.72%, little changed today, while the 10yr is back above 4.22%, +2bps firmer. Both benchmarks remain within recent ranges.

AUDUSD fell to 0.6582 in early trading as USDJPY rose following news that Japan’s conservative Takaichi won the LDP leadership. The pair has recovered to be up 0.1% to 0.6609, close to the intraday high of 0.6612, aided by better risk appetite with equities generally stronger. The USD index is 0.3% higher. 

• The Melbourne Institute’s trimmed mean inflation gauge for September picked up 0.2pp to 2% in September to be 1.9% in Q3 up from Q2’s 1.5% and may be trending higher again. It is another sign that disinflation has stalled. The RBA’s tone was very cautious after its September on hold decision. The OIS market has around a 50% chance of a 25bp rate cut by end-2025.
• With the yen underperforming today driven by political developments, AUDJPY is 1.8% higher at 99.09, close to the intraday peak at 99.107, the highest since early November 2024.
• AUDNZD has range traded today after initially jumping to 1.1351. It is now down slightly to 1.1321 with much of Australia closed.
• AUDEUR is up 0.2% to 0.5635, around today’s high, and AUDGBP is +0.2% to 0.4911 after falling to 0.4894.
• The S&P e-mini is up 0.3% and Nikkei +4.5% but ASX down 0.1%. A number of Asian markets are closed today. Oil prices are higher with WTI +1.5% to $61.77/bbl. Copper is down 0.2% and iron ore is around $103.5/t.
• The Fed’s Schmid speaks later on the economy and monetary policy and also the ECB’s Lagarde, Lane and de Guindos appear. August euro area retail sales print.

Japan stocks have surged in the aftermath of Takaichi winning the LDP leadership battle. The combination of Takaichi's pro growth/dovish BoJ backdrop has seen local bourses post sharp gains. The NKY 225 is up 4.5%, while the Topix has gained nearly 2.9%. Elsewhere US equity futures have ticked higher but remain just short of recent highs. The US government shutdown drags on, while Monday focus may rest with the Trump administrations government job cut announcements (reportedly expected to be in the thousands). China and South Korean markets remain closed. Much of Australia is also out, although the ASX200 is still trading (down modestly). 

• Japan indices, now at fresh record highs, have been aided by the weaker yen trend (we are approaching the 150.00 level), with the Topix transport gaining 2.8%. The bank sub index has lagged though, as BoJ hiking expectations have been pared, this sub index down 2.5%. Fiscal concerns under the new Takaichi regime are yet to impact broader sentiment (although the potential for pro growth from higher government borrowing/spending is a market positive). Also note offshore investors have mostly been net sellers in recent week of local stocks, so they may be coming back into the market as we break higher.
• Elsewhere Hong Long markets are weaker, but this follows a strong run higher recently. The HSI off around 0.75%.
• In South East Asia, Philippines losses have been evident. The PCOMP down a further 0.80% at the time of writing. We are still above recent lows (sub 6000), but earlier headlines from the Stock Exchange CEO noted the challenges facing the market amid near term political instability/corruption probes. (via BBG). Offshore investors have been net sellers of local stocks so far in Oct.