JGBS: Futures Lower Post Poor 2yr Auction, Ranges Holding, Tokyo CPI Tomorrow

The TYU5 range has been 110-25+ to 110-28+ during the Asia-Pacific session. It last changed hands at 110-27+, up 0-03 from the previous close. 

• The US 2-year yield has shifted lower trading around 3.914%, down 0.01 from its close.
• The US 10-year yield has edged lower trading around 4.402%, down 0.01 from its close.
• The 10-year yield has moved back towards its pivot within the wider range 4.10% - 4.65%, decent supply was seen around 4.30/35% first up. A decent bounce was seen off this support but the move has failed to follow through above 4.40% for now. The Data this week should hopefully provide more clarity going forward.
• Nick Timiraos on X: ”Fed officials expect they will need to resume lowering interest rates eventually—they just aren’t ready to do it this week. The questions dividing them center on what evidence they need to see first, and whether waiting for that clarity turns out to be a mistake.”
• “The Fed was united when officials paused cuts this year after tariffs raised fears of renewed inflation. But with tariff-related price hikes proving milder than feared and signs that hiring may be softening, officials are now fractured into three camps over whether to resume cuts.”
• “The focus will be whether Powell offers any hint of a September rate cut in his press conference Wednesday afternoon, and whether in the coming days and weeks his colleagues begin laying the groundwork for a cut at their next gathering.”
• Data/Events:  Advanced Goods Trade Balance, FHFA House Price Index, S&P Corelogic, JOLTS, Conf. Board Consumer Confidence, Dallas Fed Services Activity.

The 2-year bond auction showed strong results today. The low price printed stronger than the Bloomberg-surveyed forecast of 100.09, while the cover ratio increased to 4.4665x from 3.9028x. The auction tail also narrowed compared to last month.

• The auction occurred with the 2-year yield 10-15bps higher than last month’s issuance level.
• Whereas the 2s/5s yield curve had steepened ~5bps since last month and was around its steepest level since late 2023.
• Amid mixed demand at recent auctions, today’s result will undoubtedly be seen as a positive development.
• Following the auction, the 2-year yield richened by approximately 1bp. 

The Japanese Ministry of Finance (MoF) sells Y1,977.9bn 2-Year JGBs:

• Average Yield: 0.841% (prev. 0.729%)
• Average Price: 100.115 (prev. 99.942)
• High Yield: 0.844% (prev. 0.735%)
• Low price: 100.110 (prev. 99.930)
• % Allotted At High Yield: 35.8202% (prev. 36.5535%)
• Bid/Cover: 4.4665x (prev. 3.9028x)