AUSSIE BONDS: 10yr Futures Still Threatening Recent Highs, RBA's Bullock Friday
Aussie bond futures have had relatively tight ranges so far today, with 3yr underperforming relative to the 10yr. The 10yr got highs of 95.895, but sits slightly lower now, the 95.90 resistance level intact. The 3yr was last at 96.645. The bias for US Tsy futures is for dips to be supported, with the oil price bounce (post US sanctions news on Russia) not enough to shift sentiment lower so far today.
- Cash ACGB yields are a touch higher, but gains are less than 1bps at this stage, 3yr around 3.35%, while the 10yr is tracking at 4.11%. The 3/10s curve is little changed at +76bps.
- The AU-US 10yr spread is slightly firmer to +16.5bps, but remains well short of recent highs above +30bps.
- The BBG economist survey sees the consensus for the RBA cash rate at 3.35% to end Q1 next year, against a current rate of 3.60%. Market pricing has a cash rate around 3.20% for the March 2026 RBA meeting.
- Note tomorrow we get RBA Bullock speak, while preliminary Oct PMIs are due on the data front.
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CHINA: Bond Futures Take Back Yesterday's Gains
- Bond Futures are lower in China today, wiping out the gains from yesterday.
- The 10-Yr is lower by -0.21 at 107.73 after yesterday's gains of +0.19. The 10-Yr remains below all major moving averages.
- The 2-Yr is lower by -0.04 at 102.35 to push further below all major moving averages. The 20-day EMA above is at 102.39.
- At 1.80%, the 10-YR CGB is at the top end of the 1.70-1.80% range it has traded in since early August.
JAPAN: Koziumi Still Seen As Favorite For LDP Leadership Race
Earlier headlines crossed from Japan LDP leadership candidates. Notably from Takaichi we got, via Rtrs, :"JAPANESE PM CONTENDER TAKAICHI: WILL USE TAX REVENUES TO FUND TAX CUT, SPENDING FOR STEPS TO COMBAT RISING PRICES BUT IF NECESSARY, SHOULD ISSUE BONDS.
- This fits with Takaichi's known fiscal expansion viewpoint. Still, she sits well down per Polymarket odds, last around 28, off recent highs.
- Koizumi continues to lead, last at highs of 70 (since the LDP election was called a few weeks ago), see the chart below (Koizumi odds are the white line, Takaichi the orange line). Still, Takaichi remains the top pick among onshore opinions.
- Koizumi noted earlier: KOIZUMI: MUST BE MINDFUL OF NEED FOR FISCAL DISCIPLINE, BUT ACHIEVING SOLID ECONOMIC GROWTH IS BASIS FOR GUIDING SOUND FISCAL POLICY - [RTRS]"
- His remarks are more in line with a status quo fiscal outcome, although changes can't be ruled out.
- The JGBs 2/30s curve has flattened of late, last +225bps, we were around +245bps in early September. Nevertheless, the 2/30 curve remains near its steepest since 2005.
- The LDP election is scheduled for Oct 4.
Fig 1: Koizumi Clear Front Runner For LDP Leadership Race - Per Polymarket
Source: Polymarket/Bloomberg Finance L.P./MNI
AUSSIE BONDS: AU-US 10Y Diff In Top Half Of Range
Cash ACGBs are 2bps cheaper today.
- The AU-US 10-year yield differential is currently around +12bps, placing it in the top half of the ±30bps range that has persisted since November 2022.
- A simple regression of the 10-year yield differential against the AU-US 1-year forward 3-month swap rate (1Y3M) differential over the past two years suggests that the current spread is close to fair value.
- The 1Y3M differential, a key measure of expected relative policy paths over the next 12 months, has increased by approximately 60bps since June, reaching a level similar to October 2024.
Figure 1: AU-US Cash 10-Year Yield Differential (%)
Source: Bloomberg Finance LP / MNI
