JGBS: Futures Near Oct 8 Lows, BoJ Seen On Hold But Focus On Dec/Jan Hike Risks

In post-Tokyo trade, JGB futures closed slightly stronger, +3 compared to settlement levels, after US tsys finished Monday's session 2-5bps stronger, with a flatter curve.

• US Government shutdown concerns buoy Tsys into the close. The BLS' key economic releases would be postponed in the event of a government shutdown, per the Department of Labor's plan for such an event.
• Fed Musalem said the Fed must be cautious cutting interest rates further because inflation remains too high, Fed Williams: policy decisions on a meeting-by-meeting basis, adding that this month's rate cut made sense given rising risks to employment, and leaves monetary policy at still-restrictive levels.
• MNI: Japan Govt Keeps Economic View; Ups Spending, Capex. Japan's government slightly tweaked its economic assessment in September, upgrading views on private consumption and capital investment for the first time in over a year, though leaving its overall judgment largely unchanged, the Cabinet Office said Monday.
• MNI INTERVIEW: BOJ Decisions Inconsistent - Ex-BOJ's Yamamoto. Markets are watching Bank of Japan communications more closely than economic data for signals on policy moves, with board decisions seen as inconsistent and driven by convenience rather than fundamentals, former BOJ Executive Director Kenzo Yamamoto told MNI.
• Today, the local calendar will see BOJ Summary of Opinions (Sept. MPM), Industrial Production, Retail Sales and Housing Starts.

ACGBs (YM -1.0 & XM +2.0) are slightly mixed as US tsys and US equities rallied modestly ahead of month- and quarter-end. The potential for a government shutdown as the new fiscal year begins on Wednesday added to the demand for Treasuries. 

• StL Fed Pres Musalem said the Fed must be cautious in cutting interest rates further because inflation remains too high.
• MNI AU RBA - The RBA decision is announced today, and we believe that it will maintain its cautious approach to policy and keep rates unchanged at 3.6% in line with a unanimous Bloomberg consensus. Given the Board's data dependency and focus on quarterly CPI data, it is likely to want to wait for Q3 CPI on 29 October and other information before easing again. With ongoing significant uncertainty surrounding global growth, rates are still considered "restrictive" and domestic activity may be starting to recover; further cuts remain likely at this stage, but the timing has become less clear.
• Cash ACGBs are 1bp cheaper to 2bps richer with the AU-US 10-year yield differential at +17bps.
• The bills strip is flat to -2 across contracts.
• RBA-dated OIS pricing indicates a 25bp rate cut today is a 2% probability.
• Today, the local calendar will also see Private Sector Credit data.

• MNI: UK SEP BRC SHOP PRICES +0.2% M/M, +1.4% Y/Y