JGBS: 5Y Leads Yields Higher, Relatively Subdued Session

JGB futures are weaker, -17 compared to the settlement levels.

• (Bloomberg) - "Junko Koeda, one of the BOJ's newest board members, signaled a possible upward revision to the central bank's inflation view this month. Such a move would keep open the possibility of another rate hike this year."
• Cash US tsys are ~1bp cheaper in today's Asia-Pac session after yesterday's modest sell-off.
• The minutes of the June 17-18 FOMC meeting (released today) should underline the Committee's patience in making its next rate move amid heightened tariff-related economic uncertainty, as encapsulated in the meeting's Dot Plot which showed participants largely divided between no cuts and 2 cuts by year-end.
• The cash JGB curve has twist-flattened, with yields 1bp higher to 1bp lower, pivoting at the 10-year.
• (Bloomberg) There's little sign that longer-dated JGBs will rebound given concerns that the July 20 upper house election will lead to a surge in government spending. That's also spurring traders to pare back beta on BOJ rate hikes, as the rapid steepening of the yield curve acts to tighten monetary conditions.
• Swap rates 1bp higher to 1bp lower. Swap spreads are mostly tighter.
• Tomorrow, the local calendar will see PPI, Weekly International Investment Flow and Tokyo Avg Office Vacancies data alongside 20-year supply.

The BBDXY has had a range of 1196.17 - 1198.60 in the Asia-Pac session, it is currently trading around 1197. The USD has edged higher back towards the overnight highs in a quiet Asia-Pac session, +0.15%. CHINA CPI and PPI Weak Trend Continues: The decline in PPI entered its 33th month as June PPI declined -3.6%. This was the lowest print since July 2023. Manufactured goods prices declined further along with food and mining products. CPI in June inched up by +0.1% YoY as Core CPI rose +0.7% YoY. “With positioning so one-sided, Brent Donnelly says that even a modest pause in foreign hedging or a string of good US headlines could unleash a classic squeeze, dragging EURUSD back toward the 1.14–1.15 “pain zone” and lifting the DXY to its 50- and 100-day moving averages.” - BBG. "DONALD TRUMP DEAL TO LEAVE EU FACING HIGHER TARIFFS THAN UK- FT

• EUR/USD -  Asian range 1.1702 - 1.1729, Asia is currently trading 1.1710. The pair failed to hold onto the gains it made on news of a proposed deal with the US, demand seen again just below the 1.1700 area. The price is starting to look a little stretched in the short term and is vulnerable to any correction in the USD, first support is back towards 1.1600 then more importantly the 1.1450 area.
• GBP/USD - Asian range 1.3565 - 1.3595, Asia is currently dealing around 1.3585. Strong demand was again seen on a 1.3500 handle. Price has rejected the move higher and with the USD looking constructive the risk for GBP/USD points to further downside in the short-term. First support around 1.3500 and then more importantly the 1.3350/1.3400 area.
• USD/CNH - Asian range 7.1794 - 7.1866, the USD/CNY fix printed 7.1541, Asia is currently dealing around 7.1850. Sellers should be around on bounces while price holds below the 7.2500 area and the PBOC manages the fix lower.
• Cross asset : SPX -0.06%, Gold $3295, US 10-Year 4.41%, BBDXY 1197, Crude oil $68.17

• Data/Events : Germany CPI, Italy Industrial Production

  Fig 1: GBP/USD Spot Hourly Chart

  

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

ACGBs (YM -7.0 & XM -9.5) are weaker and near session cheaps as the fall-out from yesterday's surprising RBA decision continued.

• (Bloomberg) Former RBA Assistant Governor Luci Ellis said episodes of the RBA surprising market pricing "will be more common" due to fewer inter-meeting speeches and a reliance on post-decision briefings.
• (AFR, Stephen Miller) “Certainly, the July decision was “cautious” even if the bond market might not have found it “predictable”. However, there is an argument that the certainty with which the bond market regarded a policy rate reduction in July was a reflection of an unbalanced assessment of the evidence. Certainly, the labour market looks to be in robust good health.”
• Cash US tsys are ~1bp cheaper in today's Asia-Pac session after yesterday's modest sell-off.
• Cash ACGBs are 7-9bps with the AU-US 10-year yield differential at -6bps.
• The bills strip are 3-7bps cheaper and steeper.
• RBA-dated OIS pricing is modestly firmer across meetings today after shunting higher yesterday. Currently, pricing across meetings is 10-20bps firmer than yesterday's pre-RBA levels. A cumulative 60bps of easing is priced by year-end versus 75bps before the RBA decision.
• Tomorrow, the local calendar will be empty.  
• The AOFM plans to sell A$1000mn of the 2.75% 21 November 2029 bond on Friday.