AUSSIE BONDS: ACGB Mar-36 Supply Faces Lower Yield But Steeper Curve

Japan retail sales were slightly below market forecasts. We were -1.2%m/m, against a 0.7% forecast, with Feb revised to a 0.4% gain. In y/y terms we rose 3.1%, against a 3.5% forecast and 1.3% in Feb. 

• The y/y trend is around mid range of the past 12 months as we have oscillated between flat to +5%. The authorities remain focused on driving sustained/positive real household spending growth, aided by positive real wages growth. The next round of labour earnings data is due next Friday.
• Looking at the detail, the biggest m/m declines were for motor vehicles -4.8%m/m, and department stores -3.7%m/m. 

TYM5 is trading 112-07, up 0-02 from its close. 

• The US 10-year yield has opened in Asia around 4.16%, down 0.01 from its close.
• “The trade deficit widened to a record in March, and consumer spending slowed, contributing to the GDP growth slowdown. Any demand pulled forward ahead of tariffs will dampen growth in subsequent quarters, posing downside risk for the second half of this year.”(per BBG)
• MNI US Economist - The monthly PCE report should offer a timely update on consumer spending momentum heading into Q2. Its inflation components are expected to show a material moderation in core PCE to a ‘low’ rounded 0.1% M/M after a 0.365% M/M in February that stands a good chance of being revised up to the cusp of 0.4-0.5% M/M (making a March read-through from the earlier quarterly data more challenging).
• The 10-year Yield, has put in a lower high around 4.40% and has broken through the recent support around 4.25%. The next support is towards the 4.10% area. 
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ACGBs (YM +1.0 & XM +0.5) are slightly stronger after US tsys finished near midday bests Tuesday. 

• US President Trump has spoken at a rally on his first 100 days in office. He stated that tax cuts will be passed in the coming weeks/months.
• On trade/tariffs, he noted he had given flexibility for the auto sector, but stated that automakers will be slaughtered if they don't onshore production.
• On trade deals, he stated that officials from India, France and China are coming to make deals, but didn't provide any more details than that.
• Cash ACGBs are flat to 2bps richer with the AU-US 10-year yield differential at +2bps.
• Swap rates are 1-2bps lower.
• The bills strip has twist-flattened, with pricing -2 to +2.
• RBA-dated OIS pricing shows a 50bp rate cut in May as a 10% probability, with a cumulative 116bps of easing priced by year-end.
• Today, the local calendar will see Q1 CPI. It is forecast to show the RBA's preferred trimmed mean falling below the top of the 2-3% target band for the first time since Q4 2021. This should signal another 25bp cut on May 20. Retail sales are on Friday. The Federal Election is on Saturday.
• The AOFM plans to sell A$1200mn of the 2.75% 21 June 2035 bond on Friday.