JGBS: Futures Gap Higher On Lower Than Expected Tokyo CPI
In Tokyo morning trade, JGB futures are stronger, +13 compared to settlement levels.
- Japan's Feb Tokyo CPI print came in below expectations. The headline printed at 2.9% y/y, against a 3.2% forecast and prior outcome of 3.4%. Ex fresh food was 2.2%y/y (forecast of 2.3% and 2.5% prior). The ex-fresh food, energy measure was 1.9%y/y, unchanged from Jan, but under the 2.0% forecast.
- Offshore investors continued to buy local bonds last week. This marked the second straight week of inflows, although the cumulative trend back to late 2024 is around flat for this segment. Japanese outbound flows saw net selling of offshore bonds, largely offsetting the prior week's purchases.
- Japan's Jan (preliminary) industrial production printed at -1.1%m/m, in line with market forecasts and after a -0.2% dip in Dec. Retail sales rose 0.5% m/m for Jan, just under market forecasts (0.6% m/m) and the prior outcome was revised to a -0.8% fall.
- Cash US tsys are 1-2bps richer in today’s Asia-Pac session after yesterday’s modest twist-steepener.
- Cash JGBs are 1-3bps richer across benchmarks out the 20-year, and flat to 1bp cheaper beyond. The benchmark 10-year yield is 1.7bps lower at 1.385% versus the cycle high of 1.466%.
- Swap rates are 1-2bps lower. Swap spreads are mixed.
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AUSSIE BONDS: Richer After Q4 CPI Lower Than Expected
ACGBs (YM +6.0 & XM +4.5) are sharply higher after Q4 CPI data came in slightly below expectations across most metrics:
- Trimmed Mean CPI rose 0.5% q/q (vs. est. +0.6%) and 3.2% y/y (vs. est. +3.3%).
- Weighted Median CPI increased 0.5% q/q (vs. est. +0.6%) and 3.4% y/y (vs. est. +3.5%).
- Headline Consumer Prices rose 0.2% q/q (vs. est. +0.3%) and 2.4% y/y (vs. est. +2.5%).
- December's annual headline CPI matched estimates at +2.5% y/y.
- “The trimmed mean excluded price falls in both Electricity and Automotive fuel this quarter, alongside other large price rises and falls.” (ABS)
- Cash ACGBs are 4-6bps richer after the data with the AU-US 10-year yield differential at -15bps versus -10bps pre-data.
- Swap rates are 5-7bps lower, with the 3s10s curve steeper.
- The bills strip is richer, with pricing +4 to +7.
- RBA-dated OIS pricing is 3-7bps softer across meetings after the data. A 25bp rate cut is more than fully priced for April (136%), with the probability of a February cut at 89% (based on an effective cash rate of 4.34%). February was at 76% before the data.
AUSTRALIA DATA: A$ & Local Yields Softer Post Q4 CPI Miss
The A$ is weaker in the aftermath of the Q4 CPI print. We are back around 0.6225/30, off close to 0.40%. Jan 21 lows at 0.6209 will be in focus on a further pull back. In the bond futures space, ym +7 xm +5, slightly off best levels. OIS is 3 to 7bps softer across RBA meeting dates.
- Q4 CPI was weaker than forecast across both headline and trimmed mean. More details to follow.
AUSTRALIA DATA: Underlying CPI Inflation Moderates Slightly More Than Expected
Q4 trimmed mean CPI rose 0.5% q/q and 3.2% y/y, while headline was +0.2% q/q & 2.4% - both moderated more than expected. The December measures posted increases of 2.7% y/y and 2.5% respectively. More details to follow. See ABS press release here.
