JGBS AUCTION: 30-Year Supply Faces Lower Yield & Flatter Curve

At the Tokyo lunch break, JGB futures are holding in negative territory, -4 compared to the settlement levels.

• According to the MNI technicals team, a clear downtrend in JGB futures remains intact and recent fresh cycle lows, reinforce this condition. Note too that moving average studies on the continuation chart are in a bear-mode setup, highlighting a clear downtrend. The move down exposes 141.05, a Fibonacci projection point on the continuation chart. For bulls, a reversal would open 143.39 and 144.48, the Dec 9 and Nov 11 high respectively.
• Cash US tsys are ~2bps richer in today’s Asia-Pac session after yesterday’s modest bear-steepener.
• The cash JGB curve 1-2bps cheaper across benchmarks. The benchmark 10-year yield is 0.2bps higher at 1.138% ahead of today’s supply.
• The relative affordability of 10-year JGBs versus futures—gauged by the 7- to 10-year spread—has declined over the past month, currently sitting near the lower end of its range over the past year.
• Today’s auction also faces challenges from persistently weak sentiment toward global long-end bonds. For instance, the US 10-year yield remains near its highest levels since April, roughly 100bps above its September lows.
• The swaps curve has twist-steepened, pivoting at the 10-year, with rates 1bp lower to 3bps higher. 

Westpac is forecasting the November headline CPI to rise 0.4% m/m and 2.2% y/y up from 2.1%, in line with consensus. This release will be important as it includes updates for some services components that are only done once a quarter. Currently it is projecting a 0.2% q/q & 2.4% y/y rise in Q4 CPI with the trimmed mean posting 0.6% q/q and 3.4% y/y, in line with the RBA, but the 2-quarter annualised rate moderating to 2.9% from 3.3%.

• Westpac notes that “with such a mix of rebates, it is not clear how much of the various rebates remain unused in November, in particular, the $1,000 Qld rebate. Therefore, we don’t have a good way to estimate what the possible lift in electricity prices could be in November and so have pencilled in a 2% increase.”
• Westpac estimates that state & federal government electricity rebates will detract 0.35pp from Q4 CPI, which should be offset by increases in holiday-related prices and alcohol & tobacco. It expects headline inflation to trough at 1.9% in Q2 2025.
• Housing is another area to monitor. “Due to the increase in government assistance, rents rose just 0.1% in September and fell –0.3% in October, while the ABS noted that rents would have lifted 0.5% in September and October had it not been for the increase in assistance. We have pencilled in a 0.5% increase in rents in November.”
• “Dwelling prices fell –0.1% in September and rose just 0.1% in October. We suspect that recent changes to the support offered to first home buyers could have suppressed dwelling prices as they are reported in the CPI.”

Aussie is generally stronger versus other majors during today’s APAC trading and seems to be driven by regional equity trends. AUDUSD is up 0.1% to around 0.6252, after an intraday high of 0.6254 which followed a low of 0.6237. The US dollar is range trading after Monday’s 0.6% drop.

• AUDUSD looked through the weak November building approvals print which saw the total number fall 3.6% m/m after rising 5.2%.
• The yen is underperforming today leaving AUDJPY 0.4% higher at 98.89, close to the intraday high. AUDNZD is little changed at 1.1066 after a peak of 1.1073. AUDEUR is up 0.2% to 0.6019 and AUDGBP +0.1% to 0.4992 after approaching but not breaching 0.5000.
• Equities are generally stronger with the ASX up 0.2% and CSI 300 +0.2% but the S&P e-mini is flat and Hang Seng down 0.3%. Oil prices are continuing to trend moderately lower with WTI -0.2% to $73.40/bbl. Copper is down slightly and iron ore is lower at around $97/t.
• Later the Fed’s Barkin speaks and US November trade, JOLTS job openings, December services ISM and preliminary December euro area CPI and November unemployment rate are released.