JGBS: Futures Little Changed, BoJ: Bond Sell-Off Reflects Proper Function

ACGBs (YM -1.0 & XM -1.5) are little changed after markets reverse initial risk-off. With Israel’s aerial attack dominating, the conflict not spreading to include other countries, and oil infrastructure not targeted, the markets adopted a more sanguine view, with risk assets recovering and US tsys selling off.

• NY Fed's Empire Manufacturing survey unexpectedly saw the headline General Business Conditions index worsen in June, to a 3-month low -16.0 (-6.0 expected) vs -9.2 in April.
• Cash ACGBs are little changed with the AU-US 10-year yield differential at -20bps.
• The bills strip is modestly richer, with pricing flat to +2.
• RBA-dated OIS pricing is little changed across meetings today. A 25bp rate cut in July is given an 85% probability, with a cumulative 78bps of easing priced by year-end.
• Today, the local calendar will be empty. The highlight of the week will be May jobs data on Thursday. Bloomberg consensus sees a 20k rise in new jobs, in line with the 3-month average, with the unemployment and participation rates stable at 4.1% and 67.1% respectively.
• The AOFM plans to sell A$300mn of the 4.75% 21 June 2054 bond today, A$900mn of the 2.75% 21 June 2035 bond on Wednesday and A$800mn of the 1.00% 21 December 2030 bond on Friday.

In local morning trade, NZGBs are little changed, with the NZ-US 10-year yield differential 3bps tighter after markets reversed the initial risk-off. With Israel’s aerial attack dominating, the conflict not spreading to include other countries, and oil infrastructure not targeted, the markets adopted a more sanguine view, with risk assets recovering and US tsys selling off.

• US President Trump has posted on Truth Social, stating that Iran should have signed the deal he told them to sign, while also reiterating that Iran cannot have a nuclear weapon.
• NZ food prices rose 0.5% from a month earlier in May.
• Rabobank’s Q2 survey of farmer confidence showed that 44% of farmers expect agricultural economic conditions to improve in the coming 12 months, matching Q1 and the highest since Q2 2017. Key drivers of optimism were rising commodity prices and the outlook for overseas markets. (per BBG)
• REINZ House Price Index falls 0.6% m/m in May, +0.1% y/y.
• Swap rates are unchanged.
• RBNZ dated OIS pricing is little changed across meetings. 4bps of easing is priced for July, with a cumulative 28bps by November 2025.
• On Thursday, the NZ Treasury plans to sell NZ$225mn of the 3.00% Apr-29 bond, NZ$175mn of the 2.75% Apr-37 bond and NZ$50mn of the 2.75% May-51 bond.

Gold prices trended lower through Monday as safe haven flows moderated and reached a low of $3383.03/oz following news that Iran wants to discuss an end to the hostilities and a resumption of negotiations on its nuclear agenda conditional on the US remaining out of the conflict. They finished down 1.4% to $3385.23 to be up 2.9% in June. Bullion has started today up 0.3% to $3395.5 though following US President Trump’s comments that Iran should have signed a nuclear deal when it had the chance and that people should evacuate Tehran.

• Trump has reiterated that Iran wants to start negotiations but since it is in the stronger position Israel plans to continue weakening Iran’s military capability. Iran wants to ensure that the US doesn’t join the conflict. But Iran and Israel continued attacks overnight demonstrating ongoing geopolitical risks that could drive another rise in gold prices.
• The improvement in risk appetite associated with this news and higher US yields pressured bullion on Monday. The USD index was off its intraday low to be flat on the day.
• The bullish theme in gold remains intact with initial resistance at $3451.3, Monday’s intraday high, followed by $3500.1, the bull trigger. Initial support is at $3335.5, 20-day EMA.
• Equities rallied with both the S&P and Euro stoxx up 0.9% but the S&P e-mini has begun today down 0.4%. Oil prices were lower with Brent down 2.3% to $72.50/bbl. Copper was unchanged. Silver was slightly higher at $36.32.