AUSSIE BONDS: Smoothly Absorbed With Solid Demand Metrics
The latest round of ACGB Nov-28 supply sees the weighted average yield print 1.53bps through prevailing mids (per Yieldbroker), extending the recent trend of firm pricing at ACGB auctions.
- However, the cover ratio nudged lower at 4.1214x from 4.5214x.
- A higher outright yield and a 3/5 yield curve at its steepest since November 2023 appeared to work to support the bid.
- The recent deterioration in sentiment towards global bonds failed to temper enthusiasm.
- There has been no notable movement in YM or XM post-supply, with the Nov-28 bond little changed versus pre-auction levels in cash trade.
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AUSSIE BONDS: ACGB Dec-35 Auction Result
The AOFM sells A$800mn of the 4.25% 21 December 2035 bond:
- Average Yield (%): 4.4657 (prev. 3.9892)
- High Yield (%): 4.4675 (prev. 3.9925)
- Bid/Cover: 2.6625x (prev. 3.6083x)
- Amount Allotted at Highest Accepted Yield as Percentage of Amount Bid at that Yield (%): 52 (prev. 22.9)
- Bidders: 28 (prev. 51), 14 (prev. 23) successful, 6 (prev. 16) allocated in full
JGBS: Futures Slightly Firmer Overnight, Light Local Calendar
In post-Tokyo trade, JGB futures are slightly firmer, +5 compared to settlement levels, after US tsys finished the NY session with a modest extension of yesterday’s sharp sell-off. The US 2-year yield increased 2bps to 4.03% with the 10-year fractionally higher at 4.21%. The 10-year yield ~60bps higher than the mid-September low.
- Investor sentiment towards fixed income is being impacted by the upcoming US election, and the prospect of larger fiscal deficits, along with uncertainty about the path of interest rate cuts.
- European bond yields also closed higher with 10-year bunds increasing 4bps to 2.32% after ECB officials saw market pricing of approximately six consecutive cuts as overly aggressive.
- In the latest World Economic Outlook, the IMF lowered its global growth forecast for next year and highlighted risks from geopolitics and trade protectionism. It expects global output will expand 3.2%, down 0.1% from its July estimate. The IMF is seeing more sustainability in Japan's inflation outlook and expects further gradual rate rises in coming years (see this BBG link).
- The local data calendar remains empty until tomorrow's Oct preliminary PMIs and weekly investment flows. Tomorrow will also see 20-year supply.
LNG: European Gas Markets Nervous Heading Into Winter
European LNG prices rose 2.6% on Tuesday to EUR 41.08, close to the intraday high, to be up over 5% this month. The market in the region remains sensitive to outages going into winter despite elevated storage levels. There are forecasts that it could be colder than 2023/24.
- The continued conflict in the Middle East and the wait for Israel’s retaliation to Iran’s missile attack on October 1 pushed European prices higher. US’ Blinken is in the region for ceasefire talks while the conflict continues. 20% of global seaborne LNG transits through the Iranian controlled Strait of Hormuz. Bloomberg reports that November options contracts have been more expensive to insure than those for next winter.
- Output at a North Sea platform was halted following smoke. Operator Equinor said that shipments will be unaffected, according to Bloomberg.
- US natural gas fell 0.6% to $2.23 to be down over 21% in October. Prices have been pressured this month by less power usage due to hurricane activity and mild autumn weather. The eastern two-thirds of the US are forecast to have above average temperatures at the end of October, according to Atmospheric G2. Production and demand continue to fall relative to a year ago.
- Higher European gas prices drove Asian prices higher as the two regions compete for global supplies.
