JGBS: Cash Bond Bull-Flattener After Natl CPI Data

May jobs data are released on Thursday and Bloomberg consensus is expecting labour market tightness to continue, one of the reasons the RBA remains cautious regarding the monetary policy outlook. Consensus is forecasting a 21.2k increase in new jobs, close to the 3-month average of 23k, with the unemployment rate is steady at 4.1%. In May the RBA projected 4.2% in Q2 and employment growth of 2.1% y/y. 

• Employment forecasts are between +40k and -20k with most around +10k to +30k. ANZ and NAB are above consensus expecting 25k and 30k respectively, while CBA is slightly below at 20k and Westpac at 15k is the most pessimistic of the big four local banks.
• New jobs rose a stronger-than-expected 89k and 2.7% y/y in April. The data were released May 15, the day after the RBA cut off for its forecasting round. Thus, its 2.1% Q2 2025 projection looks too low and would require employment to fall 50k in both May and June.
• The unemployment rate was a low 4.1% in both March and April at 4.05% and 4.07% respectively. Consensus is very narrow with 20 analysts expecting it to remain at 4.1% and 7 a rise to 4.2%. ANZ, NAB and CBA forecasts are at 4.1%, while Westpac has it rising to 4.2%.
• To achieve the RBA’s average 4.2% in Q2, the unemployment rate would need to rise 0.1pp in both May and June.
• The participation rate is projected to be unchanged at 67.1% in May. It rose 0.3pp in April.

At the Tokyo lunch break, JGB futures are stronger and hovering near session highs, +33 compared to the settlement levels.

• Japan’s April core machine orders fell sharply, but in line with market projections. We were down -9.1%m/m (-9.5% forecast and following a 13.0% gain in March).
• Japan's May trade data was close to expectations, with export growth at -1.7%y/y, versus -3.7% forecast. The April outcome was +2.0%. On the import side, we were  -7.7%y/y, against a -5.9% forecast (-2.2% was recorded for April). The trade deficit was -¥637.6bn, close to forecasts but wider than the -¥115.6bn print in April.
• Cash US tsys are slightly cheaper in today’s Asia-Pac session after yesterday’s bull-flattener.
• “JGB futures are firm in early business, helped by the bid for Treasuries, but Japanese bonds won’t be getting much of a haven bid as the BOJ isn’t finished with hiking rates. Traders have parsed Governor Ueda’s language during his press conference and it is clear that the job of removing unconventional monetary policy is far from complete.” (per BBG)
• The cash JGB curve has twist-steepened, with yields 2.5bps lower to 2.5bps higher. The benchmark 10-year yield is 1.5bps lower at 1.45% versus the cycle high of 1.596%.
• The swaps curve has also twist-steepened, with rates 1bp lower to 2bps higher. 

The BBDXY range overnight was 1201.66 - 1209.66, Asia is currently trading around 1209. The window for a peaceful resolution in the middle east seems to be closing and with the US potentially now getting involved, the USD is finally looking to bounce. The USD has been able to ignore the multitude of reasons for it to bounce, but with the pressure on risk mounting and the market positioned very short USD the probabilities of some sort of a retracement is increasing. We have seen this movie before though, is it different this time ?

• Bloomberg - “Israel-Iran situation “has demonstrated that the USD still retains a bit of haven status in certain situations, such as when the War is seen to raise the risk of disrupting global oil supply, and when the war diverts traders’ attention away from those risks that are US centric, including, of course, tariff risk, and the US’s fiscal uncertainties,” wrote Thierry Wizman, a macro strategist at Macquarie Group in New York. “But we wouldn’t stretch this to say, however, that foreign traders have found renewed confidence in the US and its political economy,” he said.”
• ZeroHedge on X: "Biggest Pain Trade Is Long The US Dollar": Latest Fund Manager Survey Finds "Everyone Is Short The Buck”. See Graph Below.
• The BBDXY has bounced strongly off its 1200 support area, it is still in a clear downtrend but with positioning at extreme levels and headwinds increasing the potential for some sort of a retracement is increasing.
• The BBDXY rejected the 1225 area pretty strongly, the USD should continue to be met with supply towards the 1225/30 area, only a sustained break above here would start to get the bears a little worried. 
• There is a broad consensus that the USD is set to embark on a decent move lower as the world reduces its exposure to the US and repatriates a lot of these flows. This will also result in some decent short squeezes as a lot of the market is positioned the same way. 

• Data/Events : Data/Events: MBA Mortgage Applications, Housing starts, Initial Jobless Claims, FOMC

  Fig 1: Investor USD Position

  

  Source: @zerohedge/BofA Research