US TSYS: Asia Wrap - Yields Move Higher, Led By The Long-End

The Asia-Pac USD/JPY range has been 146.15 - 146.91, Asia is currently trading around 146.90, +0.55%. USD/JPY has broken through the 146.50 area this morning in reaction to the US bombing and the implications of potential extended US involvement in the conflict. The Market is caught long JPY and the implications of even higher oil prices as Iran contemplates blocking the Strait of Hormuz is challenging their conviction.

• “Pimco has been buying long-term JGBs to take advantage of a “dislocation” in the market, Andrew Balls told the FT, adding there’s a strong case for authorities to “issue more in the parts of the curve where the demand is.”(BBG)
• "HAYASHI: NOT TRUE US DEMANDED 3.5% GDP ON DEFENSE SPENDING" - BBG
• USD/JPY price action continues to point to a market that is positioned long JPY.
• "Asian currencies are likely to see further downside in the near-term, amid rising vulnerability to oil prices"(BBG).
• USD/JPY price action continues to point to a market that is positioned long JPY.
• Having broken above 146.50 this morning the market will be closely watching the oil price for short-term clues.
• The market is positioned for a move lower in USD/JPY and with this positioning at extremes we have seen the risk of pullbacks increase. A sustained break above 146.50/147.00 would begin to challenge the conviction of these shorts and focus will return to the 150.00/151.00 area.
• Options : Close significant option expiries for NY cut, based on DTCC data: 145.50($323m).Upcoming Close Strikes : 144.50($1.34b June 25)
• CFTC data shows Asset managers maintained their already extensive JPY longs, while leveraged funds have pared back their own longs that had just begun to be rebuilt.

Fig 1 : USD/JPY Spot Daily Chart

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

The AUD/USD has had a range of 0.6398 - 0.6449 in the Asia- Pac session, it is currently trading around 0.6405. The AUD has remained under pressure after gapping lower on the Asian open, -0.70%. The market is digesting the implications of a longer and more sustained US involvement in the conflict and how Iran might react to this, potentially blocking the Strait of Hormuz.

• AUSTRALIA DATA: Pickup In June Activity But Manufacturing Environment Difficult. The preliminary June S&P Global PMIs showed that services activity in Australia ended Q2 on a more positive note with the index up to 51.3 from 50.6. Manufacturing was stable at 51.0 as the global market becomes more challenging, which left the composite up to 51.2 from 50.5, the highest since March. The Q2 average composite PMI was 50.9 down slightly from Q1’s 51.1, signalling that growth was little changed and remained positive but lacklustre.
• "FITCH RATINGS: AUSTRALIAN MORTGAGE ARREARS SHOW SHARPER THAN EXPECTED RISE, AUSTRALIA MORTGAGE ARREARS RISE IN 1Q.”(BBG)
• The AUD/USD looks likely to have a look back towards its 0.6350/0.6400 support.
• Price remains in the wider 0.6350 - 0.6550 range for now. After failing to break higher, the focus will now turn to whether the support can hold, a close back below 0.6350 is needed to challenge the newly formed uptrend.
• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6510(AUD397m). Upcoming Close Strikes : 0.6500(AUD1.21b June 26), 0.6450(AUD553m June 26).
• CFTC Data shows Asset managers maintaining their shorts, the Leveraged community though have again added to their shorts.
• AUD/JPY - Today's range 93.85 - 94.38, it is trading currently around 94.00. Choppy price action as the pair establishes a range between 92.00 - 96.00. A break back below 91.50/92.00 is needed to see the move lower regain momentum and the focus turn back to the year's lows again. The move higher in oil and a market already very long JPY is preventing this pair moving lower in reaction to a souring risk backdrop for now.

Fig 1: AUD/USD spot Daily Chart

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

The TYU5 range has been 110-25+ to 111.04 during the Asia-Pacific session. It last changed hands at 110-27+, down 0-04 from the previous close.

• The US 2-year yield has edged higher trading around 3.916%, up 0.01 from its close.
• The US 10-year yield has bounced higher trading around 4.392%,  up 0.02 from its close.
• (Bloomberg) -- “Treasuries may benefit from demand for haven assets and concerns over an economic slowdown unless oil prices rise dramatically, according to Nomura Securities Co.”
• Lance Roberts on X: “While the Fed is quietly sitting on the hands as economic data slows and tariff inflation remains non-existent, other central banks are rapidly cutting rates with the Swiss restarting NIRP. The Fed is likely going to be too late once again adjusting monetary policy which is its history.”
• The 10-year yield continues to find decent supply back towards its 4.30/35% support, this area needs to hold if yields are to move higher. The range looks to be 4.30% - 4.60% for now a break either side would provide a clearer direction.
• Data/Events: S&P Global US PMI’s, Existing Home Sales