US TSYS: Dealing Slightly Cheaper, M/E Attack Headlines In Focus

In post-Tokyo trade on Friday, JGB futures are stronger, closing +6 compared to settlement levels, after US tsys finished modestly richer on Friday despite stronger than expected Nonfarm payrolls in April, a seasonally adjusted 115k (sa) compared to Bloomberg consensus of 65k and a primary dealer median of 70k.

• The Kobeissi Letter on X: "Iran responds to the US with a "10-point" message on the Persian Gulf and Strait of Hormuz: "President Trump on the response just now: "I don't like it."
• Open Source Intel on X: "Netanyahu on Iran: "It's not over because there's still nuclear material." On how enriched uranium gets removed: "You go in and take it." Netanyahu says Trump told him directly: "I want to go in there."
• The U.Mich consumer survey saw sentiment fall to a fresh record low in the preliminary May reading whilst consumer expectations underwhelmed as they eased back from April's levels after a swift increase. U.Mich consumer sentiment fell to 48.2 (cons 49.5) in the preliminary May reading from 49.8 in April for a fresh record high.
• Today, the local calendar will be empty ahead of Household Spending, Leading Coincident Indices and BOJ Summary of Opinions (April MPM) on Tuesday. Tuesday will also see 10-year JGB supply.

Gas prices were little changed on Friday but have started today’s trading higher following oil up on news that President Trump rejected Iran’s peace proposal calling it “totally unacceptable”. Iran continues to refuse to give up its nuclear programme which appears to be causing a stalemate between the two sides and could result in a resumption of hostilities.

• European gas is currently up 1.4% to EUR 44.75 following a high of EUR 45.45 earlier. It rose only 0.3% to EUR 43.71 on Friday. It is down 2.6% in May but remains sensitive to news from the Middle East.
• European gas storage levels are off their post-winter low of 27.7% to be around 35.0%. The goal is 90% by November but with 20% of global LNG still shut in the Gulf, concern over its ability to refill remains at the fore.
• Iran escorted a Qatari LNG tanker through the Strait of Hormuz on Sunday destined for Pakistan as part of an Iran-Pakistan agreement that should allow some shipments given critical need in the latter, according to Bloomberg.
• Demand for Russia’s sanctioned LNG in the current environment appears to be increasing with Bloomberg reporting a Russian tanker mooring at the Saam floating storage facility in western Russia. With Europe maintaining its plan to end Russian gas imports by end-2026, the shipments appear destined for Asia.
• US gas fell 0.7% to $2.750 on Friday after reaching a high of $2.845 and is currently up 1.7% to $2.804. Ample domestic supply with flows to LNG export facilities moderating are capping US prices. BNEF data showed a 4.6% w/w decline as of Friday.
• Lower-48 US gas production rose 3.8% y/y on Friday while demand increased 1.2% y/y, according to BNEF data.

ACGBs (YM -2.0& XM flat) are little changed after US tsys finished modestly richer on Friday despite stronger than expected Nonfarm payrolls in April.

• The Federal budget for FY27 is announced on 12 May. There have been significant headlines around what it will include and how it is likely to work against the RBA's goals of reducing demand and inflation. Governor Bullock said following the May decision to hike that capacity pressures mean that governments should be thinking about not adding to them and thus inflation and that help for households "makes it harder to dampen demand". According to local press reports, increased fuel reserves, a household support payment and business tax relief could be included as well as capital gains tax and negative gearing changes.
• Cash ACGBs are little changed with the AU-US 10-year yield differential at +63bps.
• RBA-dated OIS pricing shows tightening across all meetings, with the probability of a 25bp hike rising from 26% for June to 116% by September and 152% by December 2026.  
• Today, the local calendar will be empty, ahead of NAB Business Confidence and the Federal Budget on Tuesday.
• The AOFM plans to sell A$300mn of the 4.75% 21 June 2054 bond on Wednesday and A$1000mn of the 1.00% 21 December 2030 bond on Friday.