JGBS: Awaiting A Fresh Catalyst As Recent Ranges Hold, 30/40yr Yields Tick Lower

At the Tokyo lunch break, JGB futures are little changed, +2 compared to settlement levels.

• Bloomberg – “JGB investors are in the final session of 2025 and they’re holding onto the negative stance which has prevailed through most of this year, looking for further losses in January. Despite the large price decline since the BOJ rate hike 11 months earlier, there is little sign of traders trimming exposure with open interest levels for JGB futures still near the high end of this year’s range.”
• Cash US tsys are slightly richer in today’s Asia-Pac session before the release of the Federal Reserve’s meeting minutes later Tuesday. The Fed will release minutes of its Dec. 9-10 meeting, where the central bank lowered the policy rate by 25bps. Fed Governor Stephen Miran voted against the decision in favour of lowering rates by twice as much.
• Cash JGBs have twist-flattened across benchmarks, with yields 1.5bps higher to 1.5bps lower. The benchmark 10-year yield is 0.2bps higher at 2.055% versus the cycle high of 2.104%.
• Swap rates are flat to 2bps higher, with the 5-year leading.

Cash ACGBs are 2bps richer today with the AU-US 10-year yield differential at +63bps. 

• At this level, the differential sits around its cycle high, the widest since mid-2022.
• December’s price action has consolidated the differential’s breakout above the ±30bps range that had prevailed since November 2022.
• This widening has occurred alongside a steady increase in market-implied expectations for the RBA cash rate.
• However, a simple regression of the 10-year yield differential against the AU–US 1-year forward 3-month swap rate (1Y3M) spread over the past two years suggests the current differential is around 5bps above regression fair value (see chart).

Figure 1: AU-US Cash 10-Year Yield Differential (%)

Bloomberg Finance LP / MNI

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