CHINA: Bond Futures Lag Broader Rally, 10-Yr Attempts 100-day EMA Upside Test
Oct-17 03:20
- China's limited correlation to USTs is on display today as bond futures lag the broader bond rally.
- The 10-Yr is up just +0.03 at 108.19, breaking above the 100-day EMA of 108.17.
- The 2-Yr is flat at 102.36, near to the 20-day EMA. It has trended around for the last week ahead of next week's politburo meeting where chances are some guidance on policy could be forthcoming as the new 5-Yr plan is announced.
- The CGB 10-Yr is down -1.5bps today at 1.82% as the PBOC withdrew liquidity via this morning's OMO. The 10-yr CGB has held to a 1.80% - 1.90% range for some time. A break below 1.80% could the 10-Yr range return to the 1.70% - 1.80% range seen in the mid-part of the Northern hemisphere summer. They key to watch will be liquidity injections / withdrawals via the OMO and how they evolve over the coming weeks.
- Next week could be a pivotal week for policy for the remainder of the year with the loan prime rate decision and GDP third quarter released. The current forecast for GDP 3Q is for it to moderate to 4.7% from 5.2%.
- The decline from Q2 is likely as much about the upside surprise in Q2, then a dramatic slowdown with 4.7% a somewhat fairer reflection. Exports have rebounded with September expanding by +8.3%, from 4.4% the month prior though retail sales and industrial production out next week also is forecast at the weakest pace of expansion this year.
- The outlook for retail sales and service related data releases could be revised up following the October Golden week holiday numbers showing a surge in spending on travel and retail, despite long standing property woes.
- The Chinese party officials meet next week with the fourth plenum in Beijing. The output will provide guidance for the next 5-years and may be the catalyst for further policy intervention, specifically targeting domestic consumption (which has declined as a percentage of GDP) whilst mindful of the impact of the trade war on manufacturing and exports.
- We don't expect any change in the LPR given the pressure on bank margins and look for signals from the party meeting as guide for potential moves in monetary or fiscal policy.
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JGBS AUCTION: 20Y Supply Faces A Yield & A Curve Near Cyclical Highs
Sep-17 03:18
The Japanese Ministry of Finance (MoF) will today sell Y800bn of 20-Year JGBs. The MoF last sold 20-year debt on 19 August 2025.
- Today’s 20-year JGB auction offers an outright yield near its cycle high, 10bps above last month’s level.
- Moreover, the 10/20 yield curve remains near its recent high, its steepest since 1999.
- The 20-year JGB is at similar valuation to last month in terms of the 10/20/30 butterfly.
- On the other hand, the auction comes amid an improvement in sentiment toward long-term global bonds.
- Given these dynamics, it remains to be seen whether today’s supply can generate some positive momentum for JGB auctions or if market caution will weigh on demand.
- Results are due at 0435 GMT / 1235 JT.
JGBS AUCTION: PREVIEW - 20-Year JGB Auction Due
Sep-17 03:13
The Japanese Ministry of Finance (MoF) will today sell Y800bn of 20-Year JGBs. The MoF last sold 20-year debt on 19 August 2025, the auction drew cover of 3.0853x at an average yield of 2.581%, an average price of 98.93, a high yield of 2.591%, a low price of 98.80, with 65.3666% of bids allotted at the high yield.
- Last month’s 20-year JGB auction showed mixed results across key metrics. The low price underperformed dealer forecasts, which were set at 98.85 according to a Bloomberg poll. Moreover, the cover ratio declined to 3.0853 from 3.1462x in the previous auction. The auction tail did, however, shorten to 0.13 from 0.18.
- Today’s auction also comes on the heels of lacklustre demand metrics observed in this month’s 30-year JGB auctions. The cover ratio dipped to 3.31x from 3.4297x and the auction tail lengthened to 0.18 from 0.15, indicating a weakening in bidding strength.
- Results are due at 0435 BST / 1235 JT.
JGBS AUCTION: Poll: 20-Year JGB Auction
Sep-17 02:58
*JAPAN 20Y GOVT BOND AUCTION MAY HAVE 97.80 LOWEST PRICE:POLL
