AUSSIE BONDS: Futures Steady, OIS Up In Past Week, Sentiment Readings Next Week

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

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

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%).