US TSYS: Asia Wrap - Short-End Yields Edge Lower

The RBNZ has released its first official business expectations survey for Q2 2025 after trialling it over H2 2024. It found that inflation expectations rose across time horizons from 1-year to 10-years. Data released last week also showed an increase for Q2. The RBNZ decision is announced on May 28 and it is likely to cut rates 25bp but rising inflation expectations may make its tone more cautious. 

• 1-year ahead expected CPI rose to 2.44% from 2.25% in Q1 with the pickup broad-based across business size and sector, while 2-years ahead increased to 2.54% from 2.47% but was less uniform. Both 5-year and 10-year ahead are above the top of the RBNZ’s 1-3% band with the latter now close to 4%.
• The increase in expected inflation was not driven by wages, as 1-year moderated to 2.6% from 2.8% while 2-year was stable at 3.2%.
• 1-year ahead unemployment expectations fell slightly to 5.1% from 5.2% but 2-years rose 0.1pp to 4.9%. The struggling construction sector showed a larger decline than the total over both periods signalling greater optimism re the outlook.
• The survey was taken from April 22 to 30 and was likely impacted by increased global trade uncertainty.

• Ministry of Finance data shows the Chinese government deficit tipped CNY2.6tn in the year to April.  
• This deficit is one of the largest on record and represented a 50% increase year on year.  
• The government is looking to cushion the economy as it is buffeted by the impacts of the trade war.  
• Total expenditure rose 7.2 per cent to CNY12 trillion yuan, the data showed.
• In signs the economy may be stabilizing,  tax revenue rose 1.9% from a year earlier after a 2.2% decline in March.
• Signs that the wave of government bond issuance are impacting the fiscal position were evident as interest payments rose 11%.
• With signs that the US China relationship is thawing and this release could represent the low point in the deficit as signs that economic activity is stabilizing.  

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

• “Japan's sovereign debt market is flashing a warning to the central bank to be cautious when dialing back its bond purchases, as investors are shunning government debt auctions and yields are soaring. The market is particularly concerned about longer-maturity debt, which has been dependent on purchases from large Japanese institutions, and the upcoming sale of 40-year bonds on May 28 may test the market further.” (per BBG)
• “Long-dated Japanese government bonds saw little relief on Wednesday after a poor auction result sent yields to record levels and as more debt sales loomed in the weeks ahead. The selloff in bonds is a quandary for the Bank of Japan, which is trying to taper its debt purchases and normalise monetary policy. Rising long-term borrowing costs are also a warning sign for the highly indebted Japanese government.” (per RTRS)
• Cash US tsys have extended yesterday's bear-steepener, with yields flat to 2bps higher, in today's Asia-Pac session.
• Cash JGBs have bear-steepened across benchmarks, with yields flat to 6bps higher. The benchmark 20-year yield is 3.8bps higher at 2.575% after yesterday’s poor auction.
• Swap rates are flat to 6bps higher, with a steeper curve.