JAPAN DATA: Bond Purchase Outflows Lagging Better Global Bond Returns

JGB futures are sharply weaker, -19 compared to settlement levels, and at cycle lows.

• The 20-year JGB auction displayed weak demand metrics. The low-price underperformed dealer forecasts, which were set at 99.20 according to a Bloomberg poll. Moreover, the cover ratio decreased to 3.1917x from 4.0958x in the previous outing and the auction tail lengthened sharply to 0.25 from 0.03.
• With today’s 20-year JGB auction offering an outright yield 40bps above last month’s level, marking a fresh cycle high, and the 10/20 yield curve at its steepest since 1999, the auction outcome appears even weaker than the already lacklustre demand observed in the 10- and 30-year JGB sales earlier this month.
• Post-auction, the 20-year JGB yield is 4bps higher, +15bps on the day.
• Cash US tsys are dealing cheaper in today's Asia-Pac session, after yesterday's MLK holiday, with yields flat to 5bps higher and the curve steeper. They have joined the global bond selloff as concerns mount over fiscal spending, renewed geopolitical tariff threats, and the potential impact on demand for US assets.
• Cash JGBs have bear-steepened aggressively across benchmarks, with yields flat to 16bps higher.
• Swap rates are flat to 11bps higher.
• Tomorrow, the local calendar will see Trade Balance and Weekly International Investment Flow data.

Source: Bloomberg Finance LP

The NZD/USD had a range today of 0.5789-0.5831 in the Asia-Pac session, it is currently trading around {NZD Curncy}. The NZD has pushed higher remaining well bid all through our session as the USD bears the brunt for the Greenland saga. The NZD has technically put in what looks like a top around 0.5850 but the inability to regain momentum lower would be disconcerting for a market that is short the NZD. The strength of the recent data is also starting to mount and is something to keep in mind. On the day, the NZD bears will not be happy as the price pushes back above 0.5825 and now has eyes on the pivotal 0.5850 area. A sustained break above 0.5850 could potentially start seeing some of these shorts be unwound and potentially signal a reversal in trend. NZ CPI this Friday will also be an important input.

• Bloomberg - “New Zealand Services Industry Shows First Expansion in 22 Months. New Zealand’s Performance of Services Index rebounded to 51.5 in December from revised 47.2 in November, according to Bank of New Zealand and Business New Zealand. Gauge is above 50, indicating expansion, for first time since February 2024
• "New Orders/Business measure lifts to 52.5 from 49.6. Composite indicator for services and manufacturing suggests “signals firmly positive GDP growth into the end of 2025 and establishes forward momentum into the new year”: BNZ senior economist Doug Steel"
• Options : Closest significant option expiries for NY cut, based on DTCC data: none. Upcoming Close Strikes : 0.5650(NZD343m Jan 22), 0.5740(NZD692m Jan 22) - BBG
• The NZD/USD Average True Range for the last 10 Trading days: 40 Points

Fig 1: NZD/USD Spot Daily Chart

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

TYH6 is dealing at 111-19+, -0-04+ from closing levels in today's Asia-Pac session.

• Cash US tsys are dealing cheaper in today's Asia-Pac session, after yesterday’s MLK holiday, with yields flat to 5bps higher and the curve steeper.
• Cash US tsys have joined the global bond selloff as concerns mount over fiscal spending, renewed geopolitical tariff threats, and the potential impact on demand for US assets.
• Today’s 20-year JGB supply is a case in point, with supply displaying weak demand metrics. The low-price underperformed dealer forecasts, which were set at 99.20 according to a Bloomberg poll. Moreover, the cover ratio decreased to 3.1917x from 4.0958x in the previous outing and the auction tail lengthened sharply to 0.25 from 0.03.
• The longer-dated US tsys also appear weighed down by lingering uncertainty over Federal Reserve independence and rising speculation that Rick Rieder could be the next Fed Chair.