JGBS: Futures Make Fresh Lows, Bear Trend Accelerates, 10yr JGB Yield Hits 2.10%
JGB futures sit a touch above earlier lows, (132.21), but maintain a negative tone, last 132.45, -.40 versus settlement levels for the March contract. This keeps the firm downside trend intact and is a continuation of the move seen post last week's BOJ rate hike, where the market didn't get enough clarity on further rate hike timing. From a technical standpoint, outside of today's earlier intra-session low, note that 131.94 is the 1.0% 10-dma envelope.
- Cash JGB yields sit firmer across the benchmarks albeit away from session highs. The belly to 10yr tenor have led the move. The 10yr got above 2.10%, but sits back around 2.08% in latest dealings (still close to +6bps higher), which is fresh highs back to the late 1990s. The 5 and 7yr tenors are +5bps higher, while 1-4yr tenors around 4-5bps higher. The back end (20-40yr) is 2-3.5bps higher.
- The 2/10s curve is steeper at +96bps.
- The main news flow today has been fresh jawboning against FX weakness, although yen gains have been fairly modest in response. We may see more concern around higher JGB yields if recent trends continue.
- On the data front tomorrow, we just have Nov F machine tool orders.
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RATINGS: Moody's Upgrades Italy To Baa2 From Baa3, Still A Notch Below Others
The Moody's upgrade to Italy's credit rating announced late Friday was the first from the agency since 2002 but shouldn't be considered a major surprise. Among the 3 major ratings agencies, Moody's had the lowest rating on Italy - by two notches (Fitch and S&P both BBB+).
- So this upgrade to Baa2 from Baa3 represents something of a closing of that gap rather than a major breakthrough for Italy.
- From the release:
- "The rating upgrade reflects a consistent track-record of political and policy stability which enhances the effectiveness of economic and fiscal reforms and investment implemented under the National Recovery and Resilience Plan (NRRP). It also points to prospects of further policy actions supporting growth and fiscal consolidation beyond the plan's deadline in August 2026. As a result, we expect that Italy's high government debt burden will gradually decline from 2027 onwards."
FED: Heading Into Its Final Weeks, QT Pace Remains At $20B/Month (2/2)
On the asset side of the Fed balance sheet, we saw a $25B drop in assets, of which just $2B could be attributed to QT in one of its final weeks (ends Dec 1).
- Instead it was a $6B drop in dealer repo operations vs a week earlier, and $17B in "other" areas that aren't related directly to monetary policy and typically don't have any significant impact on the size of the balance sheet (such changes are largely due to items such as bank premises, accrued interest, and other accounts receivable.)
- Discount window takeup edged up $0.3B to $6.1B but remains relatively low.
- QT has totaled just under $21B over the last month, around the expected pace, though as noted this will flatline in December with a pickup in net bills as MBS proceeds are rolled over into T-bills.
LOOK AHEAD: US Week Ahead: Retail Sales, PPI & Claims Headline Thanksgiving Week
A Thanksgiving-condensed week sees data highlights from delayed retail sales and PPI reports for September on Tuesday (Nov 25) before a Wednesday release for weekly jobless claims (Nov 26). Aside, the Fed’s Beige Book should also offer another important update on Wednesday for latest liaison reporting, with no Fedspeak currently scheduled around the holiday and the FOMC media blackout due to start on Saturday, Nov 29.
- As we regularly comment in this weekly publication, Redbook and Chicago Fed CARTS indicators point to solid nominal growth in retail sales, something broadly reflected in analyst consensus for the release.
- PPI inflation will offer a useful albeit not overly timely update on input cost pressures.
- Jobless claims will be watched particularly closely, both for latest initial claims for signs of layoffs and a notable update for continuing claims. The latter covers the payrolls reference period for November and will be an important reference point for FOMC members trying to get a sense of latest unemployment rate clues with the next payrolls reports coming after the Dec 9-10 FOMC decision (going into it with this week’s 0.12bp rise to 4.44% back in September).
