JGBS: Futures Unchanged Overnight, Pension Funds A New Source Of Demand
Jul-10 23:37
In post-Tokyo trade, JGB futures are unchanged compared to settlement levels, after modest gains by US tsys ahead of today’s US CPI data.
- There was not much new to drive the markets though the slightly dovish tone from Fed Chair Powell's testimony this week remained supportive and extended the bullish momentum. "You don't want to wait until inflation gets all the way to 2% to ease policy" while "we want to have greater confidence, which means more good inflation readings.”
- The US$39bn 10-year supply saw reasonable demand and cleared 1bp through the pre-auction level. There will be US$22bn of 30-year supply following the release of the June US CPI data later today.
- Consensus sees core US CPI at 0.2% m/m in June after the softer-than-expected 0.16% m/m in May (vs cons 0.3), with a mild skew toward a “high” 0.2%, per MNI’s compilation of sell-side previews.
- (Bloomberg) Japan’s Government Pension Investment Fund is emerging as an important source of demand for the nation’s debt just as the central bank plans to reduce bond purchases. (See link)
- Today, the local calendar will see Weekly International Investment Flow, Core Machine Orders and Tokyo Office Vacancies data alongside 20-year supply.
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OIL: Crude Rises Sharply, Industry Reports & Fed This Week’s Focus
Jun-10 23:35
Oil prices rose sharply on Monday driven by a degree of normalisation following last week’s post-OPEC meeting sell off as indicators flashed oversold and was also supported by additional US sanctions on Iranian shipping. Saudi Arabia reinforced that the group can change its plans at any time if needed. The USD index rose 0.1%.
- WTI broke through $76, $77 and then $78. It rose 3.6% to $78.23/bbl, close to the intraday high, to be up 1.6% in June. It has started trading today lower at $78.07. Resistance at $77.10 was breached opening up $80.62, May 1 high.
- Brent is up 3% to $81.97/bbl after having broken above $82 briefly to make a high of $82.17. Gains are still considered corrective and the bearish theme is intact. Monday’s rally saw Brent break resistance at $81.29, 20-day EMA, opening up $84.72, May 29 high.
- The US driving season started in late May and is expected to support demand for crude over the summer. Monthly reports from the IEA, OPEC and the US EIA this week will be monitored for changes to the supply/demand outlook. The Fed decision will also be a focal point.
- On the supply side, Iraq has said that it is close to an agreement with Kurdistan to resume oil exports that have been disrupted since early 2023.
AUSSIE BONDS: Plays Catch-Up To US Tsys’ Post-Payroll Sell-Off
Jun-10 23:30
In roll-impacted dealings, ACGBs (YM -2.8 & XM -4.7) are modestly cheaper as the local market reopens after yesterday’s holiday. Overnight, the US tsy 10-year yield finished the NY session 3bps higher, extending the sell-off post-Friday’s strong payrolls report. The 2-year rate was down less than 1bp.
- US economic data flow was light, with only second-tier data. The NY Fed survey of consumer expectations showed median year-ahead inflation expectations down 8bps to 3.17% and the five-year ahead measure up 18bps to 3.00%.
- The focus is on the US CPI report due Wednesday, followed closely by the FOMC's policy announcement. Trading conditions will likely be quiet until these key risk events are out of the way.
- Cash ACGBs are 10-12bps higher than Friday’s close, with the AU-US 10-year yield differential at -12bps.
- Swap rates are 9-12bps higher, with EFPs tighter and the 3s10s curve steeper.
- The bills strip has bear-steepened, with pricing flat to -3.
- RBA-dated OIS pricing is 4-9bps firmer for meetings beyond September, with Aug-25 leading. 5bps of easing is priced by year-end.
- There is a rather light local data calendar today with only NAB Business Confidence. UK employment this afternoon.
BONDS: NZGBS: Cheaper, US Tsys See Mild Bear-Steepening,
Jun-10 22:56
In local morning trade, NZGBs are 4-5bps cheaper after US tsys finished Monday with a mild bear-steepening. The US 2-year yield finished 0.6bp lower versus a 3bps rise for the 10-year.
- It was a relatively quiet start to the week with US tsys mirroring moves in ECBs after the French President called for a snap election following weekend parliamentary elections.
- A weak sale of 3-year notes added to Treasury losses with the auction tailing the WI by 1.1bp. The auction’s bid-to-cover was 2.43, below the 2.57 recent average. Direct allotment dropped to 15.9%, below the 18.7% recent average, while indirects were at 64.1% vs. 63.2% average. The dealer takedown at 20% was the most since December and above the 18.1% recent average.
- NZ’s light traffic index fell 0.4% m/m in May, while heavy traffic gauge dropped 2.3% m/m. Heavy traffic suggests positive GDP growth in 1q “but hasn’t had a great record of picking GDP lately”: ANZ (per BBG).
- US investors are keenly awaiting two key events on Wednesday: the latest CPI data and the latest thoughts from Federal Reserve chairman Jerome Powell.
- Swap rates are 2-4bps higher, with the 2s10s curve steeper.
- RBNZ dated OIS pricing is little changed. A cumulative 21bps of easing is priced by year-end.
