JGBS AUCTION: 20Y Supply Faces A Yield & A Curve Near Cyclical Highs

NAB business price/cost components in May were mixed containing elements of concern and optimism. The pickup in labour costs in addition to signs that wage growth is rising again are likely to be monitored closely. The employment component of the survey though was very weak which may pressure pay gains.

• Purchase costs rose 1.1% 3m/3m and the price of final products were up only 0.5%, both the slowest since January 2021. Retail prices rose 1.2% 3m/3m, unchanged from April and the fastest since October.

Australia NAB business prices/costs 3m/3m %

• However, labour costs rose 1.7% 3m/3m from 1.5% in April, highest since January and signalling that wage growth may have risen further in Q2 after both the annual rise in WPI and compensation per employee increased in Q1 with April SEEK advertised salary growth steady.
• Businesses in certain sectors noted to the RBA that it was difficult to pass higher costs onto customers. 

Australia labour costs 3m/3m %

At the Tokyo lunch break, JGB futures are slightly weaker, -4 compared to the settlement levels, after giving up overnight gains.

• BoJ Governor Ueda has been before parliament, answering questions from lawmakers. The Governor inoted limited policy space on the downside, given the current 0.50% policy rate. This is if fresh stimulus is needed. The real rate is being kept sub 0% to stimulate the economy further, as Ueda states that Japan is still some distance from the 2% inflation objective. Ueda reiterated that they will raise rates if they have confidence in achieving the 2% target.
• US equity futures have broken to fresh multi-month highs in the first part of Tuesday trade, with Nasdaq futures slightly outperforming. We can't see any direct fresh catalysts for the move.
• Cash US tsys are 1-2bps cheaper, with a slight flattening bias, in today's Asia-Pac session after yesterday's modest rally.
• Cash JGBs have twist-flattened across benchmarks, with 5-7-year yields 1bp higher and the 30-40-year yields 2bps lower. The benchmark 10-year yield is 0.3bp higher at 1.471% versus the cycle high of 1.596%.
• Swap rates are flat to 2bps higher, with the curve steeper. Swap spreads are mixed.

A relatively quiet start to the week with a major inflow for Korea tipping the last 5-days of inflows above $2bn

• South Korea: Recorded inflows of +$834m yesterday, bringing the 5-day total to +$2,117m. 2025 to date flows are -$8,739. The 5-day average is +$423m, the 20-day average is +$158m and the 100-day average of -$89m.
• Taiwan: Had inflows of +$4m as yesterday, with total inflows of +$167 m over the past 5 days. YTD flows are negative at -$12,611. The 5-day average is +$33m, the 20-day average of +$93m and the 100-day average of -$116m.
• India: Had inflows of +$147m as of the 6th, with total outflows of -$292m over the past 5 days.  YTD flows are negative -$10,820m.  The 5-day average is -$58m, the 20-day average of -$11m and the 100-day average of -$106m.
• Indonesia: Had outflows of -$44m as of the 5th, with total outflows of -$205m over the prior five days.  YTD flows are negative -$3,014m.  The 5-day average is -$41m, the 20-day average +$2m and the 100-day average -$30m.
• Thailand: Recorded outflows of -$6m as of yesterday, outflows totaling -$417m over the past 5 days. YTD flows are negative at -$2,172m. The 5-day average is -$41m, the 20-day average of +$2m and the 100-day average of -$30m.
• Malaysia: Recorded outflows of -$8m as of yesterday, totaling -$100m over the past 5 days. YTD flows are negative at -$3,523m. The 5-day average is -$18m, the 20-day average of -$2m and the 100-day average of -$25m.
• Philippines: Saw outflows of -$4m yesterday, with net inflows of +$6m over the past 5 days. YTD flows are negative at -$517m. The 5-day average is +$1m, the 20-day average of -$14m the 100-day average of -$5m.