JGBS: Futures Stronger Overnight, US Tsys Little Changed After FOMC
Jun-18 23:25
In post-Tokyo trade, JGB futures closed stronger, +10 compared to settlement levels, despite US tsys finishing little changed after yesterday's FOMC decision.
- US tsys had pared most of the gains by the close that had materialised after the Fed's latest quarterly projections showed policymakers on average still expect to cut interest rates twice by year-end.
- (MNI) For his part, Powell didn't make much of an effort to convince that the Fed could and should soon ease from what he called currently "modestly restrictive" policy, which left us wondering whether he was one of the more hawkish or less dovish half of the SEP table (9 of 19 participants saw 1 or zero cuts in 2025, while the remaining 10 pencilled in 2 or 3 cuts).
- (Bloomberg) - "Japan's exports fell 1.7% in May from a year earlier, led by declines in cars, steel, and mineral fuel, due to the US tariff campaign. The drop in exports and larger trade deficit raise concerns that Japan's economy could shrink again in the second quarter, pushing it into a technical recession."
- Today, the local calendar will see Weekly International Investment Flow and Tokyo Condominiums for Sale data alongside 5-year supply.
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JGBS: Futures Richer With US Tsys, Light Local Calendar, 20Y Supply
May-19 23:19
In post-Tokyo trade, JGB futures closed stronger, +16 compared to settlement levels, after US tsys finished the NY session 2-4bps richer.
- Jitters over Moody's downgrade on Friday rekindled fears of another "Sell America" trade. But the downgrade concerns abated since it was a long time coming and not surprising.
- 30Y yields notably touched their highest since Nov 1 2023 (5.0353%) - up 13.5bp from Friday's ratings downgrade announcement - before an impressive reversal lower on the day (just 1+bp up from pre-downgrade).
- We heard from multiple Fed speakers, including Bostic, Jefferson, Williams, and Kashkari. All of them reiterated the FOMC's patient approach to cuts amid economic uncertainty, and Williams and Bostic in particular suggested that the next cut wouldn't seriously be contemplated until after the summer. Reaction was limited, however, given the market's already-low implied probability of a cut before September.
- US President Trump has had a two-hour conversation with Russian President Putin about the war in Ukraine. Trump said that he believes that Putin wants peace.
- Reuters reported - "Nippon Steel plans to invest $14 billion in US Steel if the Trump administration approves the merger of the companies."
- Today, the local calendar will see Tokyo Condominiums for Sale data alongside 20-year supply.
BONDS: Richer After US Tsys Reverse Initial Downgrade Reaction
May-19 23:10
In local morning trade, NZGBs are 2-4bps richer after US tsy yields finished the NY session 2-4bps lower.
- Wall Street and US tsys erased early losses and closed in the green. Jitters over Moody's downgrade on Friday rekindled fears of another "Sell America" trade. But the downgrade concerns abated since it was a long time coming and not really surprising.
- Overnight US 10-year yields had a range of 4.4434% - 4.5624%, closing around 4.44%.
- 30Y yields notably touched their highest since Nov 1 2023 (5.0353%) - up 13.5bp from Friday's ratings downgrade announcement - before an impressive reversal lower on the day (just 1+bp up from pre-downgrade).
- We heard from multiple Fed speakers. Reaction was limited, however, given the market's already-low implied probability of a cut before September.
- Swap rates are 2-4bps lower, with the 2s10s curve flatter.
- RBNZ dated OIS pricing is little changed across meetings. 25bps of easing is priced for May, with a cumulative 63bps by November 2025.
- Today, the local calendar will be empty ahead of trade balance data on Wednesday and the Budget on Thursday.
- On Friday, the NZ Treasury plans to sell NZ$250mn of the 3.00% Apr-29 bond, NZ$150mn of the 3.50% Apr-33 bond and NZ$50mn of the 1.75% May-41 bond.
CHINA: Preview: Loan Prime Rate Decision Today
May-19 23:01
- Loan Prime Rates ("LPR") are market-based benchmark lending rates used for new and outstanding loans, replacing the central bank's benchmark one-year lending rate. They are calculated monthly based on quotes submitted by designated commercial banks, with the National Interbank Funding Center (NIFC) acting as the publisher. The LPR is used as a reference for bank lending, and it's calculated by adding a spread to the Medium-Term Lending Facility (MLF) rate, which is a central bank lending instrument.
- The LPR's intent is to promote a market based system and to make credit pricing more efficient. It consists of two tenors: one-year and over-five-year. The one-year LPR is a key benchmark for most new and outstanding loans, while the five-year LPR is used for mortgages.
- Over the last year then PBOC has tended to focus on the daily open market operation ("OMO") as the mechanism for supporting interbank liquidity.
- On May 7th, the PBOC announced a reduction in the 7-day rate for reverse repo sold during the OMO.
- As such, we expect Banks to reduce their quotes for both tenors of the LPR by the 10bps reduction.
- This would bring the LPR's down to 3.00% for the 1-year and 3.50% for the 5-year
