JGBS: Cash Bonds Slightly Mixed, 40Y Supply Tomorrow

ACGBs (YM +3.5 & XM +3.5) are stronger.

• Cash US tsys are ~2bps cheaper in today's Asia-Pac session after Friday's strong rally.
• Cash ACGBs are 3-4bps richer with the AU-US 10-year yield differential at +1bp.
• Bloomberg's updated consensus forecasts show that the RBA is widely expected to be on hold in September and that there will be one final cut for the year in Q4, likely November as that coincides with the RBA's revised outlook. Forecasters are split over 2026 though and where rates will trough with most projecting either 3.35% with no moves in 2026 or 3.1% with one last cut early next year. One of the main outliers is Westpac, which expects another rate cut in Q2 2026 with the cash rate then stabilising at 2.85%. AMP is forecasting the same path.
• The bills strip has bull-flattened, with pricing +1 to +4.
• RBA-dated OIS pricing is slightly softer across meetings today. A 25bp rate cut in September is given a 29% probability, with a cumulative 36bps of easing priced by year-end.
• Tomorrow, the local calendar will see the RBA Minutes.
• This week, the AOFM plans to sell A$1200mn of the 2.75% 21 June 2035 bond on Wednesday and A$1000mn of the 2.75% 21 November 2028 bond on Friday.

NZGBs closed showing a modest bull-steepener, with benchmark yields 1-3bps lower, after opening 5-6bps richer following the strong Friday for US tsys.

• Cash US tsys are ~2bps cheaper in today’s Asia-Pac session.
• NZGBs underperformed their $-bloc counterparts, with the NZ-US and NZ-AU 10-year yield spreads 5bps and 3bps wider, respectively, on the day.
• Swap rates closed 2-3bps higher.
• (Bloomberg) “NZ Prime Minister Christopher Luxon said he personally agrees that the Reserve Bank should have cut the Official Cash Rate by 50 basis points last week.
• Luxon said he routinely meets with RBNZ Governor Christian Hawkesby before rate decisions to discuss how the economy is performing and that he suggested the bank should be more aggressive. Luxon emphasized that the Reserve Bank's independence is "sacrosanct" and that his conversations with RBNZ officials are constructive and do not involve directing the bank.”
• RBNZ dated OIS pricing closed slightly softer across meetings. 19bps of easing is priced for October, with a cumulative 36bps by November 2025.
• The local calendar will be empty tomorrow and Wednesday, ahead of Filled Jobs and ANZ Business Confidence on Thursday.
• On Thursday, the NZ Treasury plans to sell NZ$250mn of the 4.50% May-30 bond and NZ$200mn of the 4.50% May-35 bond.

The BBDXY has had a range of 1201.36 - 1203.53 in the Asia-Pac session, it is currently trading around 1202, +0.05%. The USD collapsed with US yields as the market interpreted Powell to be surprisingly dovish. ‘Up the stairs and down the elevator’ would be an accurate way to describe price action in the USD with the market being dragged kicking and screaming to reduce its shorts into the event but is very quick to reinstate USD shorts when it perceived very little hawkish push back. A sustained break below 1197/1195 is needed to regain the momentum lower and retest the year's lows. There are some who do not see Powell’s speech to be as dovish, price action over the next couple of days will determine who is right.

• EUR/USD -  Asian range 1.1694 - 1.1724, Asia is currently trading 1.1705. The market is attempting to regain its upward momentum after Jackson Hole. The pair needs to sustain a break back above 1.1800/1.1850 to start another leg higher.
• GBP/USD - Asian range 1.3391 - 1.3544, Asia is currently dealing around 1.3515. The pair found solid demand towards its support around 1.3400 and has bounced nicely from there with the help of Powell. Back in the middle of its recent 1.3350-1.3650 range, the USD’s fate will have a direct impact on which side is tested.
• USD/CNH - Asian range 7.1572-7.1743, the USD/CNY fix printed 7.1161, Asia is currently dealing around 7.1590. Sellers should be around on bounces while price holds below the 7.2200/2500 area and the PBOC manages the fix lower. Above 7.2500 and we could see a test of the USD Shorts.
• Cross asset : SPX -0.05%, Gold $3366, US 10-Year 4.27%, BBDXY 1202, Crude Oil $63.79
• Data/Events : Germany IFO

Fig 1: GBP/USD Spot 2H Chart

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