JGBS: Futures Higher Overnight With US Tsys, BoJ Speaks Today

JGB futures finished Monday trade at 137.24, -.06 versus settlement levels post the Tokyo close. Intra-session lows for Monday were at 137.21. Downside momentum in JGB futures was supported by offshore developments, with generally negative leads from EU and US markets. There may also be some nervousness creeping into markets ahead of today's 10yr debt auction. Recall last week there was quite a poor bid to cover ratio at the 2yr auction.

• In terms of JGB futures technicals, a bear threat remains present and the contract is trading closer to its recent lows. A resumption of weakness would signal scope for an extension towards 136.57, a Fibonacci projection.
• Before the 10yr auction we have August monetary base figures, while BoJ Deputy Governor Himino speaks at 10:30am local time. Focus will for the speech will be any hiking hints ahead of year end. The end Oct meeting has a market implied rate of just above 0.60%, against a current effective policy rate near 0.48%.
• In the cash JGB space, the 10yr yield ended yesterday at 1.635. The 10yr swap rate was last close to 1.445%. 

NZ saw the largest improvement in the merchandise terms of trade in Q2 since Q1 2024. It rose 4.1% q/q, the sixth consecutive quarterly increase, to be up 12.2% y/y after 10.3% y/y in Q1. While domestic demand remains soft, this rise in the terms of trade will be providing some welcome support to growth. The services terms of trade fell 0.4% q/q but rose 1.0% y/y after falling 7.3% y/y.

NZ terms of trade y/y%

• A 3.7% q/q fall in imported goods prices drove the terms of trade rise as export prices rose only 0.25% but they are up 11.7% y/y. Dairy export prices rose 2.0% q/q to be up 19.7% y/y after +10.5% & 26.8% in Q1.
• Services saw a 1.8% q/q fall in export prices and -1.4% for imports leaving them up 5% y/y and 4% y/y respectively.
• Goods export volumes fell 3.7% q/q to be up only 0.4% y/y driven by a 7.9% q/q decline in dairy shipments. Import volumes rose 4.2% q/q to be up 3.5% y/y. This signals that Q2 net exports could detract from GDP growth when it is released on September 18.
• Consumption goods import volumes fell 1.3% q/q to be up only 0.5% y/y after -0.1% q/q & +2.3% y/y in Q1. This was the third straight quarterly decline signalling that household spending remains weak. 

NZ merchandise trade volumes y/y%

Source: MNI - Market News/LSEG

Aussie bond futures are lower in early Tuesday trade. 3yr futures (YM) were last at 96.55, down 1.5bps. Late August lows (96.535) could be in focus if we see more downside. For 10yr futures (XM), we are seeing some underperformance, we were last 95.63, off 2.5bps. Recent lows were at 95.6050. These moves are mirroring US Tsy futures weakness, which is being led by the back end. 

• US Treasury futures dealt mildly cheaper at the early close for Labor Day on Monday, after an unsurprisingly quiet session. Sell-off cues were taken from some mild weakness in EGBs on supply grounds. We have re-opened this morning with a negative bias.
• In the cash ACGB space, yields are higher across the benchmarks, with the back end leading slightly. The 3yr was last above 3.43%, while the 10yr is approaching 4.34%, up a little over 2bps.
• The data front today sees the Q2 current account which has been in deficit since Q2 2023. It is forecast to widen to $16.0bn after Q1’s -$14.7bn. Net exports detracted 0.1pp from Q1 GDP growth, in line with Q4, and are forecast to contribute 0.1pp in Q2. Public demand figures are also out today for Q2.
• Note as well there is a 2034 bond sale today.