JGBS: Futures Range Bound, JGB Bonds Outperforming Recent US Sell-off
JGB futures have stayed within recent ranges in the first part of Friday trade. JBH5 (March 2025) was last 142.53, +.08 versus settlement levels. Earlier highs were at 142.62.
- The Q4 Tankan survey came in mostly better than expected and points to a resilient growth/capex outlook. Inflation expectations were also solid.
- Still, it wasn't robust enough to shift market expectations around next week's BoJ meeting. Market pricing is only giving close to a 16% chance of a hike next week. We were consistently above 60% in parts of late Nov.
- The bias in JGB yields has been to edge lower, more so for short tenors, with swap rates behaving in a similar fashion. Japan bonds have outperformed the recent sell-off in US Tsy bond markets.
- The 10yr JGB yield was last under 1.05%, slightly up from session lows. Yields have been slightly firmer in the 20-40yr tenor space.
- Next week's main focus will rest on the Thursday's BoJ meeting.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
JAPAN: Import Prices May Soon Return To Positive Y/Y Territory
Earlier data showed Japan import prices down -2.2% y/y in Oct, little changed from September's -2.5% pace. Still, in m/m terms import prices were up 3.0% m/m, the first gain since July of this year.
- Y/Y momentum in import prices may soon return to positive territory. The chart below overlays import prices against y/y changes in USD/JPY.
- If USD/JPY holds at current levels into year end (near 155.00) it will have the y/y change at nearly +10% by end December, which is the extended line shown in the chart below.
- Today's data showed all import prices up in m/m terms by sub-category.
- The main BoJ focus point is on domestic service price pressures. As our policy team noted earlier today "BOJ officials are encouraged by the October price revisions as firms are transferring higher labour costs to retail prices. They will now focus on the October nationwide CPI due out on Nov. 22 to examine services prices."
- Still, higher import costs via a weaker yen, could still impact BoJ thinking over coming months.
Fig 1: Japan Import Prices & USD/JPY Y/Y Changes
Source: MNI - Market News/Bloomberg
AUSSIE BONDS: Very Heavy Ahead Of US CPI Today & Jobs Tomorrow
ACGBs (YM -10.0 & XM -11.00) are sharply cheaper and at the Sydney session’s worst levels ahead of key US CPI data later today and October jobs tomorrow. 3-year yield climbs 10bps to 4.21%, the highest since 2023.
- Q3 WPI printed below expectations at 0.8% q/q and 3.5% y/y after 0.8% q/q and 4.1% y/y, lowest since Q4 2022.
- Cash US tsys are slightly cheaper in today’s Asia-Pac session after yesterday’s heavy session.
- Cash ACGBs are 10-11bps cheaper with the AU-US 10-year yield differential at +24bps.
- Swap rates are 9bps higher.
- The bills strip has sharply bear-steepened, with pricing -2 to -12.
- RBA-dated OIS pricing is 2-9bps firmer across the 2025 meeting. A 25bps rate cut is not fully priced until September.
- Analysts are again forecasting a 25k rise in employment tomorrow but with the unemployment rate steady at 4.1%. The labour market remains tight. The RBA noted in November that “some indicators have recently stabilised”, including hours worked, while the youth unemployment rate and underemployment have “declined”.
- QTC has priced an A$1.75bn increase of the 4.50% Aug-35 A$ bond. The transaction has a re-offer yield of 5.47%.
ASIA STOCKS: Hong Kong Equities Continues Sell-Off, HSI below 20,000
China mainland equities are slightly higher today with the CSI 300 +0.10%, however the gains have been largely attributed to Telecom stocks, with most other sectors in the red. The HSI has dropped for a fourth consecutive day, and trading below 20,000 for the first time since late September, and losing 7.60% from Nov 8 highs. The decline was driven by concerns over Donald Trump’s re-election, which is expected to bring higher tariffs, trade protectionism, and increased inflation.
