JGBS: Bull-Flattener As Yesterday's Post-Supply In 30Y Rally Extends

The overnight range was 86.60 - 87.36, Asia is currently dealing 86.45. This pair stood out as the outlier when cross-yen was accelerating higher and was the best vehicle to be short of if you wanted a hedge against those in your basket. This turnaround in risk has seen the pair very quickly gather pace lower again. A lot obviously depends on how long and how deep this correction in risk turns out to be, but NZD/JPY should now be a sell on rallies as the focus turns back toward the 85.00 area. A break back below 85.00 could potentially signal the start of a bigger move lower and the beginning of a new downtrend.

Fig 1 : NZD/JPY Daily Chart

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

In Tokyo morning trade, JGB futures are higher, +15 compared to settlement levels.

• MNI Tech: Prices started last week well, growing the gap with next support into the 135.61 Oct 08 low. Despite this stability, prices remain inside the firm downtrend that’s dominated prices since mid-September, and prices will need to challenge resistance before signaling any broader reversal. Key short-term resistance has been defined at 137.30, the Sep 8 high. Further weakness would open 135.39 next, a Fibonacci projection. (see chart)
• MNI: BOJ Minutes: More Than Two Members Positive On Hike - One Bank of Japan board member, apart from the two who proposed raising the policy rate to 0.75%, said it was time to consider another increase as more than six months had passed since the last hike, minutes of the Sept 18-19 meeting showed Wednesday.
• However, the member noted that uncertainty remained over the pace of the U.S. economic slowdown and said it was appropriate for the Bank to maintain its current policy stance for the time being.
• Cash US tsys are 1-2bps richer in today’s Asia-Pac session after yesterday’s modest rally.
• Cash JGBs are flat to 1bp richer across benchmarks, with the 10-year outperforming ahead of today’s supply. The benchmark 10-year yield is at 1.661% versus the cycle high of 1.705%.
• Swap rates are ~1bp lower. 

Source: Bloomberg Finance LP

The BBDXY range overnight was 1220.99 - 1226.13, Asia is currently trading around 1225, -0.02%. The USD continues to build on its recent gains eking out new highs every day, what stood out was with risk turning lower the USD gained some tailwinds as its status as a “safe haven” looks to have been reinstated. The 1230 area remains tough resistance, only a sustained close back above 1230 would start to challenge the conviction of the longer-term USD shorts. Risk/Reward does still favour fading this moving initially but the price action is starting to look more constructive as higher lows are being made and the dips remain very shallow pointing to a reduction in short positioning. A sustained move back above 1230 would potentially signal a medium term low is in place and a deeper pullback is on the cards. 

• Robin Brooks wrote on X this pullback is linked to gold - “The Dollar today is at its strongest level since May and its rise is linked to the bursting of the gold bubble. Both things are driven by markets upgrading their assessment of the US economy. I forecast Dollar strength as a result of the gold unwind here.”

Fig 1: BBDXY Weekly Chart

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