JGBS: Futures Upticks Faded, Focus On 5yr Debt Sale
JGB futures track at 137.78, -.22 versus settlement levels. We sit a touch above recent lows (137.69), while earlier highs this morning were at 137.86. The data calendar is quiet but we do have a 5yr JGB auction a little later. This will be in focus given recent mixed auction outcomes, as well as fresh political uncertainty, given the weekend decision by PM Ishiba to step down.
- Bear cycle risks for JGB futures still look to be in play. Recent lows were close to 137.20.
- In the cash JGB space, we are seeing some softness in back end yields, with the 30 and 40yr tenors down over 2bps. The 10yr is relatively steady, last near 1.58%. Front end yields are up a little over 1bps, the 2yr last around 0.86%. Some carry over from Tuesday headines around BoJ rate hike speculaiton may be aiding sentiment in this space
- The 5yr tracks at 1.12%. The average yield at the last auction was 1.056%. The chart below shows the historical bid to cover ratio for 5yr auctions.
- Via BBG: Mitsubishi UFJ Morgan Stanley Securities expects a solid result as "supply and demand for the short- to medium-term sectors should be firm for now."
Fig 1: Japan 5yr Debt Auction - Historical Bid To Cover Ratio
Source: Bloomberg Finance L.P./MNI
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AUSSIE BONDS: Subdued Data light Session With Cash US Tsys Out
ACGBs (YM -0.5 & XM -0.5) are slightly weaker on a local data-light day with cash US tsys out due to a Japan holiday.
- The focus of the week will be on tomorrow's RBA decision. A 25bp cut to 3.6%is widely expected. The RBA announcement at 1430 AEST will include how the Monetary Board voted and an update of staff projections. Governor Bullock will hold her usual press conference at 1530 AEST.
- There are also a number of key data releases too. Q2 wages print on Wednesday and July jobs data Thursday. Q2 wages on Wednesday and are forecast to moderate slightly rising 0.8% q/q & 3.3% y/y after Q1's 0.9% q/q & 3.4% y/y. July labour market data print on Thursday and will be watched closely for signs of further deterioration.
- Cash ACGBs are 1bp cheaper with the AU-US 10-year yield differential at -3bps.
- The bills strip is flat to -1 across contracts.
- RBA-dated OIS pricing is little changed across meetings today. A 25bp rate cut tomorrow is given a 97% probability, with a cumulative 62bps of easing priced by year-end.
- This week, the AOFM plans to sell A$1200mn of the 4.25% 21 December 2035 bond on Wednesday and A$1000mn of the 2.75% 2 1 November 2029 bond on Friday.
FOREX: JPY Crosses - Bounce With Risk, Approaching Key Resistance
US Equities were bid for the majority of the N/Y session, closing within a whisker of all-time highs. This morning US futures are trading slightly higher, ESU5 +0.17%, NQU5 +0.11%. The JPY crosses are extending their recent gains, though they are now approaching some pivotal resistance.
- EUR/JPY - Friday night range 171.49 - 172.34, Asia is trading around 172.05. This pair bounced off its support just below 170.00 and has bounced nicely to put a base in now around 170.00. While risk continues to trade positive this will remain well bid now on dips.
- GBP/JPY - Overnight 197.70 - 198.82, Asia trades around 198.55. The pair found good demand towards the 195.00 support as risk turned higher. Depending on your view for risk from here, I suspect this bounce back towards 198.50 could see sellers remerge first up. A move back above 200.00 would signal another leg higher though.
- NZD/JPY - Overnight range 87.77 - 88.13, Asia is currently dealing 87.85. The pair found solid demand towards the 86.50 area, sellers should remerge a bounce back towards 88.00/88.50 first up. A sustained move back above 89.00 would reinstate the momentum higher.
- CNH/JPY - Overnight range 20.4828 - 20.5711, Asia is currently trading around 20.5400. This pair had an ugly rejection just below the 21.00 area and is back probing its first support area. Good demand has continued to be seen around this 20.40 area initially, a sustained break back below 2.3000 is needed to turn momentum lower again.
Fig 1 : GBP/JPY Daily Chart
Source: MNI - Market News/Bloomberg Finance L.P
CHINA: Central Bank Withdraws CNY432.8bn via OMO
- The PBOC issued CNY112 bn of 7-day reverse repo at 1.4% during this morning's operations.
- Today's maturities CNY544.8bn.
- Net liquidity withdrawal CNY432.8bn.
- The PBOC monitors and maintains liquidity in the interbank system through the issuance of reverse repo.
- The CFETS Pledged Repo Deposit Institutions 7 Day Weighted is at 1.40%, from prior close of 1.42%.
- The China overnight interbank repo rate is at 1.30%, from the prior close of 1.29%.
- The China 7-day interbank repo rate is at 1.41%, from the prior close of 1.45%.
