AUSSIE BONDS: Futures Steady, OIS Up In Past Week, Sentiment Readings Next Week
Aussie bond futures sit little changed in Friday dealings, with domestic news/data flow light, while the US non-farm payrolls print is in firm focus later. 10yr futures (XM) were last at 95.63, up 1bps, with earlier highs at 95.645. For the 3yr future (YM), we were at 96.50.
- Cash ACGB yields sit mixed but aggregate moves are less than 1bps at this stage. The 10yr is down a touch to 4.34%, while the 3yr is holding near 3.48%. The 3/10s curve is a touch flatter near +86bps.
- The AU-US 10yr spread is close to +20bps, fresh highs back to early April. The bias in US Tsy futures has been higher today, but cash yield losses have been modest.
- RBA dated OIS contracts sit slightly over the past week. The Dec contract last around 3.30% (against an effective policy rate of 3.59%), we were at 3.26% at the end of last week. The Feb 2026 contract is around 3.21%, up close to 9bps over the past week.
- The Q2 GDP beat, and some hawkish Bullock comments around how easing is likely to be needed, have helped such trends.
- Next week, we get Westpac Consumer Sentiment and the NAB Business survey on Tuesday.
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US TSYS: Asia Wrap - Yields Edge Higher In A Quiet Session
The TYU5 range has been 112-04 to 112-07 during the Asia-Pacific session. It last changed hands at 112-04, down 0-05 from the previous close.
- The US 2-year yield has edged higher trading around 3.726%.
- The US 10-year yield has moved higher trading around 4.222%, up 0.01 from its close.
- The 10-year yield had a powerful move lower in reaction to the NFP data, breaking below its 4.30% pivot within the wider range 4.10% - 4.65%. This now turns momentum lower in yields and you could expect buyers of treasuries on bounces back towards 4.30/35% now looking to initially test the 4.10% area.
- Bloomberg - “Trump said he’ll pick a successor for Adriana Kugler before the end of the week. He added that the replacement for Jerome Powell is down to four people and that Scott Bessent declined to be considered for the role.” - BBG
- The Department of the Treasury will auction $42 billion of August 2035 notes
- Bloomberg - “Bond traders are increasingly betting on up to 75 bps in Fed rate cuts in 2025 amid signs of a weakening US economy. The shift in sentiment follows soft payrolls data and stagnation in the services sector.”
- Truflation on X: “PCE close to 2%! All inflation metrics are falling. No more excuses. No more empty words. It's time to act, Powell.”
- Data/Events: MBA Mortgage Applications
Fig 1: 10-Year US Yield Daily Chart
Source: MNI - Market News/Bloomberg Finance L.P
GLOBAL MACRO: Sharp Narrowing In US Deficits With China, EU & Canada
In line with global export growth peaking in March, US data shows that its trade deficit peaked at the same time. Countries front loaded shipments to beat the early April reciprocal tariff announcement. Ship tracking data for May show that the number of container vessels moderated, and consistent with this the US June visible trade deficit fell to its lowest in over two years. Given the bringing forward of shipments, the data is going to be difficult to interpret over H2. It will take time to see what the impact from the increase in the US effective tariff rate to around 16% will be on the deficit.
- Bilateral balances have generally turned over 2025. The deficit with Canada narrowed around $2.1bn in June from March but almost $10bn since January, China’s $8.4bn and $22.2bn respectively and the EU’s $37.6bn and $13.4bn.
- Looking at Asian trends, the 12-month sum of the US deficit with Japan has stabilised, narrowed with China and Korea, but deteriorated with India and especially Taiwan.
US merchandise trade deficit $bn 12mth sum
- The monthly deficit with Taiwan has consistently widened over 2025 as negotiations with the US took place. Its reciprocal tariff was reduced to 20% from 32% but uncertainty over its key chip shipments continues. The number of ships leaving for the US has moderated since late July but remain around the recent average.
- US imports growth peaked in March at 32.3% y/y and fell 0.2% y/y in June driven by sharp declines from its main trading partners. Imports from Canada fell 13.7% y/y, 6.3% from the EU but a sharp 44.5% from China.
- There also seems to have been a frontloading of US exports with growth peaking at 10.8% y/y in April as firms were likely concerned about retaliation. This has moderated since with June only 3.4% y/y.
US merchandise imports y/y%
Source: MNI - Market News/LSEG
AUSSIE BONDS: Little Changed On A Subdued Data-Light Session
ACGBs (YM -0.5 & XM -1.0) are little changed on a data-light session.
- Cash US tsys are flat to 1bp cheaper, with a steepening bias, in today's Asia-Pac session after yesterday's twist-flattener.
- Cash ACGBs are 1bp cheaper with the AU-US 10-year yield differential at +2bps.
- The latest ACGB Mar-36 auction saw strong demand, with the weighted average yield coming in 0.21bps through prevailing mid-yields, according to Yieldbroker, continuing the trend of firm pricing at recent ACGB auctions. However, the cover ratio collapsed to 3.3111x from 4.45x.A$1000mn of the 3.00% 21 November 2033 bond is planned for Friday.
- The bills strip is weaker, with pricing -1 to -3.
- RBA-dated OIS pricing is little changed across meetings today. A 25bp rate cut in August is given a 100% probability, with a cumulative 63bps of easing priced by year-end (based on an effective cash rate of 3.84%).
