JGBS: Futures Weaker & Near Lows At Lunch, 30Y Underperforming

ACGBs (YM +1.0 & XM +0.5) are little changed on a data-light Sydney session. 

• May's jobs data is on Thursday. Bloomberg consensus sees a 20k rise in new jobs, in line with the 3-month average, with the unemployment and participation rates stable at 4.1% and 67.1% respectively.
• Cash US tsys are 2-3bps richer in today's Asia-Pac session, partially reversing yesterday's cheapening.
• MNI - Former Fed Board of Governors economist Joseph Gagnon expects the FOMC to be on hold all year as inflation rises more than unemployment.
• The BoJ Policy decision is due shortly, with the market expecting an unchanged decision. The key area of interest will be Governor Kazuo Ueda's post-meeting press conference. Investors will closely examine his comments for any signals on the timing and likelihood of future rate hikes. The second area of market focus is on the BoJ's JGB purchase program. Market expectations suggest a slower pace of reductions during fiscal year 2026.
• Cash ACGBs are little changed with the AU-US 10-year yield differential at -19bps.
• The bills strip is little changed, with pricing -1 to +1.
• RBA-dated OIS pricing is slightly softer across meetings today. A 25bp rate cut in July is given an 86% probability, with a cumulative 80bps of easing priced by year-end.

At the Tokyo lunch break, JGB futures are slightly stronger, +3 compared to the settlement levels, after paring overnight gains.

• This comes despite cash US tsys being 2-3bps richer in today’s Asia-Pac session, partially reversing yesterday’s cheapening.
• We are getting closer to the BoJ policy announcement release window. As usual, the general rule of thumb is that the later the policy announcement time, the greater the likelihood that a potential policy change is being debated.
• The BoJ is expected to keep its policy rate unchanged at 0.50% today. The key area of interest will be Governor Kazuo Ueda's post-meeting press conference. Investors will closely examine his comments for any signals on the timing and likelihood of future rate hikes.
• The second area of market focus is on the BoJ's JGB purchase program. Market expectations suggest a slower pace of reductions during fiscal year 2026. (See MNI BoJ Preview here)
• Cash JGBs are flat to 2bps cheaper across benchmarks, with the 7-10-year zone underperforming. The benchmark 10-year yield is 1.5bps higher at 1.453% versus the cycle high of 1.596%.
• Swap rates are flat to 2bps higher, with a mild steepening bias. Swap spreads are mixed.

We are getting closer to the BoJ policy announcement release window. The table below presents the policy announcement times going back to the start of 2024. It is currently near 10:55am local time in Japan. As usual, the general rule of thumb is the later the policy announcement time the greater the likelihood a potential policy change is being debated. 

• As we noted in our preview, no changes are expected in the policy rate. The key area of interest will be Governor Kazuo Ueda’s post-meeting press conference. Investors will closely examine his comments for any signals on the timing and likelihood of future rate hikes.
• The second area of market focus is on the BoJ’s Japanese Government Bond (JGB) purchase program. Market expectations suggest a slower pace of reductions during fiscal year 2026. If the BoJ chooses to maintain the current pace of ¥400 billion reductions per quarter in FY2026, this would be interpreted as a mildly hawkish move. See our full preview at this link. 

Fig 1: BoJ Policy Announcement Times 

Source: Bloomberg Finance L.P./MNI