JGBS: Futures Maintain Positive Bias, Back End Yields Lower, BoJ Seen On Hold

• NZ government bonds are opening the week marginally better, with yields out to 10-Yr lower by up to -0.5bps.  
• The 2-Yr has been very strong over late, dropping by -25bps in September and is currently at 2.74%.  
• The 10-Yr is starting the week off modestly better at 4.22, having been relatively steady around those levels last week.  
• For the week ahead we have already had out Filled Jobs SA MoM which was inline at +0.2%.  ANZ Activity Outlook and Business Confidence is released as well as Building Permits MoM, Home Value and Commodity prices MoM.  
• The equity market is up modestly at the start of the week by 0.25%, taking it back to flat over the last five days of trading.  

Oil prices were moderately higher on Friday and finished the week up around 4.5% on geopolitical risks particularly stemming from Russia-Ukraine but also the reimposition of UN sanctions on Iran over its nuclear programme. US President Trump increased diplomatic pressure on Turkey to stop buying Russian oil and is likely to do the same with Hungary. Crude was also supported by the softer US dollar (BBDXY -0.3%).

• Ukraine’s President Zelensky said that he expects further EU sanctions on Russia announced this week.
• Brent increased 0.5% to $69.75 following a peak of $70.76 to be up 4.6% last week and 3.4% this month. It broke above initial resistance but key resistance at $71.93 remains intact.
• WTI rose 0.3% m/m to $65.19/bbl after reaching the month’s high of $66.42. It finished up 4.5% on the week and 2.7% in September.
• WTI is currently around $65.04/bbl, a moderate move after exports resumed from Iraqi Kurdistan through the Kirkuk-Ceyhan pipeline on the weekend after a deal was finally reached with Turkey. Flows were halted in March 2023.
• Iraq has revised up its export forecast to 3.65mbd after the resumption of shipments at a time when significant excess supply is forecast for 2026 and OPEC has increased its output target.
• OPEC+ decides production for November on 5 October and is currently expected to increase it by more than the 137kbd for October, according to Bloomberg. It seems that the group is now beginning to unwind the 1.66mbd of previous output cuts as it works to regain market share but Saudi is the main source of spare capacity.
• Oil prices have also been supported by algorithmic traders shifting positions which were 27% net long on Friday from 27% short the day before, according to Bridgeton Research.

The Friday night range was 149.41 - 149.95, Asia is currently trading around 149.45. The USD’s bout of strength stalled as the data on Friday came in as expected. This saw USD/JPY fail toward 150.00 and drift lower. Having closed back above 149.00 the JPY bears would expect to now see buyers on dips with the focus turning toward the pivotal 151-152 area. Non-Farms this week if released could have a significant bearing on price, so the market will be setting up for this to start the week. First Support is around the 148.50/149.00 area.

• (Reuters) - The Bank of Japan will probably raise its benchmark interest rate at least four more times to 1.5% before Governor Kazuo Ueda's term ends in early 2028, former central bank board member Makoto Sakurai told Reuters. Sakurai, who retains close contact with incumbent policymakers, forecast another hike by year-end, two more increases in fiscal 2026, and one or two hikes in the year ending March 2028.
• Bloomberg - “Dollar-Yen Risk Is Overlooked by Investors, Morgan Stanley Says. Morgan Stanley says markets are underpricing the risk that the dollar will push lower against the yen. It recommends buying options ahead of US jobs data, a potential US US government shutdown and the party leadership election in Japan.” 
• “LDP contender Sanae Takaichi hinted at a review of Japan’s $550 billion investment fund that was part of its pact with the US.” - BBG
• Options : Close significant option expiries for NY cut, based on DTCC data: 150.70($410m). Upcoming Close Strikes : 146.50($1.09b Oct 1) - BBG.
• CFTC data shows last week asset managers increased their JPY longs slightly +79262( Last +71162), leveraged funds though again used the dip to add to their short position as the support held, -634171(Last -58811). The diverging views amongst investors continue to build.
• Data/Event : Leading Index

Fig 1 : JPY CFTC Data

Source: MNI - Market News/Bloomberg Finance L.P