JGBS: Futures Weaker Overnight Ahead Of Domestic Data Drop

In local morning trade, NZGBs are 2-3bps cheaper after a heavy session for US tsys.

• Overnight, the US 10-year yield fluctuated within a range of 4.3915% to 4.4893%, closing at around 4.48%.
• The softer-than-expected core reading in June  (0.23% M/M vs 0.29% MNI median, 0.13% prior) comes with higher core goods prices than expected (0.20% M/M vs 0.19% MNI median, -0.04% prior), but that's outweighed by core services slightly on the light side (0.25% M/M vs 0.27% MNI median, 0.17% prior).
• Treasury yields rose overnight on concerns about potential tariff-driven inflation.
• US tsys had rejected the initial post-CPI rally as markets woke up to the fact that there were clear signs that tariffs were starting to show up in the core goods data.
• Swap rates are
• RBNZ dated OIS pricing is little changed across meetings. XX bps of easing is priced for August, with a cumulative XX bps by November 2025.
• Today, the local calendar will be empty.
• On Thursday, the NZ Treasury plans to sell NZ$200mn of the 4.50% May-30 bond, NZ$200mn of the 4.25% May-36 bond and NZ$50mn of the 1.75% May-41 bond.

• Initial headlines yesterday created concerns that if the US amplifies pressure on Russia, its supply of oil could be interrupted.
• Details of the US plans to pressure Russia into a ceasefire emerged to show that infrastructure was not expected to be targeted.  This has been taken that oil supplies will likely not be impacted.  The threats however throw a spotlight on India and China who remain as the biggest buyers of Russian oil.
• This saw the market re-focus on the upcoming OPEC+ led increase in supply and saw oil post modest declines overnight.  
• WTI finished the US session down -0.69% at US$66.52 bbl.  
• Brent finished the US session down -0.72% at US$68.71 bbl.
• The US may depart the International Energy Agency without changes to forecasting that Republicans have criticized as unrealistically green, according to President Donald Trump's energy chief.
• Guyana’s oil exports are set to hit a fresh record in September of 900,000 bbl / day as the country starts selling a new crude grade, adding barrels into a global market where OPEC+ is seeking to recover market share.
• Gold finished the US trading session down marginally after earlier gains were erased into the close.  
• Gold finished at US$3,324.55, a fall of -0.57% as a tame inflation report added further to the view that rates are not close to being cut.
• Gold's two key drivers at present remain geo-political risk (trade tensions) and US inflation expectations, both of which appeared to soften overnight.  

The overnight range was 147.58 - 149.02, Asia is currently trading around 148.90. USD/JPY surged higher with US yields in response to the US CPI showing clear signs that tariffs are beginning to impact the core goods data. The USD/JPY relentless march higher has been pretty telling, challenging a market positioned the wrong way. This time USD/JPY has not given the JPY longs any respite and the powerful move back above 148.00 does not bode well. Dips should now be well supported in the short-term, will Asset Managers start paring back their extensive JPY longs now ? The first decent buy zone is now back towards the 147.00 area.

• (Bloomberg)- Short-dated options bets turned net bearish on the yen to the dollar on Tuesday for the first time since September of 2022 as the Japanese currency hit its lowest spot level since the aftermath of Liberation Day. The moves indicate the downdraft in the Japanese yen is set to extend.
• “Japan’s bond market is facing a potential Liz Truss moment as the risk of a ruling coalition defeat in Sunday’s election fuels concerns over fiscal policy. Yields on bonds with maturities of 20 years and beyond have risen at least 20 bps this month, part of a wave of selling in global bond markets as investors increasingly worry about government finances.” - BBG
• USD/JPY is now breaking above the highs of this year's range and implies the move could have more to play out. The Market is long JPY and should the USD continue to correct higher the risk is a move back above 150.00 to further challenge the conviction of the shorts.
• Options : Close significant option expiries for NY cut, based on DTCC data: 149.00($910m).Upcoming Close Strikes : 145.50($1.29b July 21).
• CFTC data shows Asset managers reduced their JPY longs slightly +89331, while leveraged funds have almost squared their newly built JPY longs +5224.
• Data/Event : 

Fig 1 : USD/JPY Spot Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P