CHINA: Bond Futures Rally on Poor Industrial Profits

*JAPAN 40Y GOVT BOND AUCTION MAY HAVE 3.085% HIGHEST YIELD: POLL – BLOOMBERG

The Japanese Ministry of Finance (MoF) is set to auction ¥500 billion of 40-year JGBs today. The previous 40-year auction was held on 27 March 2025.

• Today's auction comes after poor demand metrics were observed at the 20-year JGB auction earlier this month.
• Notably, the current 40-year auction yield is approximately 60bps higher than the previous auction but 35-40bps below the recent high of 3.69% recorded this month.
• Moreover, the 20/40-year yield curve has steepened 40bps since the last auction but currently sits 20bps below its recent high.
• Results are due at 0435 BST / 1235 JST.

The RBNZ cut rates 25bp to 3.25% following a vote that included an option to leave rates unchanged. The vote wasn’t unanimous with one dissenter. There appears to be some disagreement over the impact of increased trade protectionism on NZ inflation. Despite this, the OCR path was revised down to show a trough 25bp below February’s at 2.85%, which signals that the impact of current global developments would require stimulatory policy by end-2025.

• The arguments to cut rates included inflation is within the 1-3% target band, core and wage inflation are moderating, significant spare capacity persists, domestic inflation is impacted by higher administered prices, and growth and inflation are projected to be lower due to global events.
• In terms of staying on hold, the MPC considered that it would have more time to assess the impact of elevated uncertainty on behaviour, will help inflation expectations to return to the band mid-point, and “guard against” risk of higher inflation from a tariff-related supply chain shock.
• Given the outcome of US trade negotiations remains highly uncertain, the RBNZ ran two scenarios with different impacts on NZ inflation – significant rise in global production costs increasing imported inflation and weaker global growth & trade diversion reduces imported inflation.
• Global developments drive the RBNZ’s downward revision to growth and inflation. GDP is revised lower in 2025 but then is expected to be higher in 2026. The economy is still assumed to recover with end-2025 growth at 1.8% y/y and 2.9% Q4 2026 after -1.1% in Q4 2024. It believes that it continues to be “well placed” to respond to events.
• Q2 2025 inflation was revised up 0.2pp to 2.6% y/y but Q4 is 0.1pp lower at 2.4% and Q4 2026 at 2.1%.
• The OCR troughs at 2.85% in Q1 2026 with 25-50bp of easing in Q3 2025. Rates are assumed to return to around ‘neutral’ in 2027.