JGBS AUCTION: 40Y Auction Delivers A Strong Result

• Ahead of new issues for CNY160bn 3-Yr and CNY90bn 10-Yr the CGB 10-Yr yield is marginally lower at 1.73%
• Priced later the new issues are expected to go well with news reports today showing the bond ETFs have topped CNY850bn with strong inflows in 2026
• Most price action will likely be seen via the futures with the 10-Yr down -.06 to 108.985 and nearing its downside resistance via the 20-day EMA of 108.94
• The 2-Yr CGB yield is steady Monday at 1.233% and with limited expectations for monetary policy changes in Q3, should remain steady.  
• This morning saw LPR interest rates unchanged as expected and for the rest of the week there is little key data releases.  
• Wednesday sees further new issues with a CNY85bn 30-Yr and a CNY160bn 2-Yr for bond markets to focus on.   

At the Tokyo lunch break, JGB futures are little changed, -3 compared to settlement levels.

• (Bloomberg) “Japanese Prime Minister Sanae Takaichi signaled her acceptance of the Bank of Japan’s interest rate increase by reiterating a standard line touting government coordination with the central bank. Takaichi said the central bank should conduct appropriate monetary policy, taking into account economic, price and financial developments, with the aim of achieving the 2% price stability target in a sustainable manner.”
• (Bloomberg) “Proxies for Japanese pension funds bought the largest amount of the nation’s government bonds in almost two years last month, the latest Japan Securities Dealers Association data show.”
• Cash US tsys are 2-4bps cheaper in today’s Asia-Pac session after Friday’s holiday.
• Risk appetite has improved following a joint statement from mediators Qatar and Pakistan and comments on X from Iran’s foreign minister Araghchi that progress had been made in US-Iran talks and that the technical team would continue to work out details through the week.
• There were fears that negotiations would be derailed by the ongoing Israel-Hezbollah conflict" – BBG.
• Cash JGBs are flat to 6bps cheaper, with a steepening bias.
• The swaps curve has bear-steepened, with rates 2-7bps higher. Swap spreads are mixed.

The EUR/USD range overnight was 1.1429-1.1481, Asia is currently trading around 1.1465. The pair stalled initially towards the pivotal 1.1400 area as the broader Dollar complex bounce slowed its ascent. The USD Bears will again be relying on this pivotal 1.1400-1.1500 support to hold but the tailwinds seem to be building for the USD at the moment. On the day, the initial resistance is toward 1.1490-1.1520 and then the 1.1600-1.1650 area. The 1.1400-1.1900 range has held going back well over a year now. Can the USD continue to build momentum on this reaction to the Fed to challenge this pivotal support. A sustained break below 1.1400 would potentially signal the beginning of a new downtrend with the initial target in the 1.0900-1.1100 area. 

• MNI BRIEF: Merz Outlines Need For FX Accord Talks.German Chancellor Friedrich Merz said Friday that he had raised the issue of exchange rates at the recent G7 summit in Evian during talks on how to remedy global economic imbalances. 
• MNI INTERVIEW: ECB Ready To Hike Or Change Course - Kocher. The European Central Bank is close to its baseline inflation scenario following the end of hostilities in the Gulf but remains prepared to hike rates or to change its monetary policy stance if necessary, Austrian National Bank governor Martin Kocher told MNI.
• Options : Closest significant option expiries for NY cut, based on DTCC data: 1.1400(EU743m), 1.1500(EU948m), 1.1550(EU1.77b). Upcoming Close Strikes :  1.1500(EU2.26b June 25), 1.1550(EU2.51b June 24), 1.1600(EU1.78b June 25) - BBG
• The EUR/USD Average True Range for the last 10 Trading days: 62 Points

Fig 1 : EUR/USD Spot Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P