JGBS: Futures Weaker Overnight Despite US Tsys Strength
In post-Tokyo trade, JGB futures closed weaker, -8 compared to settlement levels, despite US tsys strengthening on short covering after several sessions of losses, including the bearish spillover from political fallout in France and Japan.
- A solid 3-year auction and a slide in stocks also underpinned US tsys. Wednesday sees the September FOMC Minutes, Fed Speak and 10Y R/O.
- (Bloomberg) -- BOJ Governor Kazuo Ueda will likely face a tougher political environment in the second half of his five-year term starting Thursday after the ruling party leadership victory of Sanae Takaichi, a critic of interest rate increases. If he stands pat, as suggested by one of Takaichi’s economic advisers, analysts may conclude that he is already pushing back a hike in response to Takaichi’s victory. That might cause the yen to weaken further, presenting both Ueda and Takaichi with a currency issue and a wait of almost two months until the next policy meeting.
- (Bloomberg) "Investors wagered that Sanae Takaichi's pro-stimulus stance would result in a slower timeline for the Bank of Japan's policy tightening. The yen's weakness may sustain the appeal of carry trades, with some strategists predicting the currency will weaken broadly, potentially dropping toward 180 per euro."
- Today, the local calendar will see Cash Earnings, BoP Current Account Balance and Trade Balance data.
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AUSSIE BONDS: Futures Rise With US Tsys, ACGB Yields Nearly Erase Sep Gains
The early impetus in Aussie bond futures is higher, with the 10yr future (XM) up 5bps, to 95.685, while the 3yr future (YM) is up 5.5bps to 96.57. This follows the surge in US Tsy futures on Friday after the weaker NFP print. The US 10yr Tsy yield broke to fresh multi month lows sub 4.10% amid further signs of a weaker US labour market.
- For Aussie 10yr bond futures, to the upside, the next resistance is at 96.207, a Fibonacci retracement point. Initial near-term resistance is seen at 95.805, the Aug 4 high. A break of this hurdle would be a bullish development. Next support undercuts at 95.420 (pierced), the Feb 13 low, ahead of 95.275, the Nov 14 low and a key support.
- In the cash ACGB yield space, we are down around 5-6bps in the first part of Monday dealings. The 3yr yield is back to 3.41%, while the 10yr is just under 4.28%. We aren't too far off month to date lows for both of these yield benchmarks.
- The 3/10s curve is around +87bps.
- On the data front this week, tomorrow we get the Westpac consumer sentiment index for Sep, also out is the August NAB business confidence read.
ASIA: Government Bond Issuance Today
- Bank of Korea to Sell KRW800bn 91-Day Bonds
- South Korea to Sell KRW4.3tn 3-Year Bonds
- Thailand to Sell THB20bn of 182-Days Bills
- Malaysia to Sell MYR5 Billion 2028 Bonds
- Philippines To Sell PHP 8.5Bln 182D Bills (PH0000060048)
- Philippines To Sell PHP 8.5Bln 91D Bills (PH0000059644)
- Philippines To Sell PHP 8.0Bln 364D Bills (PH0000061020)
JGB TECHS: (U5) Bear Threat Still Present
- RES 3: 146.53 - High Aug 6
- RES 2: 141.48/142.95 - High May 2 / High Apr 7
- RES 1: 139.05 High Aug 4
- PRICE: 138.25 @ 16:04 BST Sep 5
- SUP 1: 137.00 - Round number support
- SUP 2: 136.57 - 1.382 proj of the Jan 28 - Feb 20 - Feb 26 bear leg
- SUP 3: 134.89 - 2.000 proj of the Jan 28 - Feb 20 - Feb 26 bear leg
A bear threat in JGB futures remains present despite the recovery of recent lows, including the rally into the Friday close. A resumption of weakness would signal scope for an extension towards 136.57, a Fibonacci projection. The first important resistance to watch remains 141.48, the May 2 high. Clearance of this level would be viewed as a bullish signal. Initial short-term resistance is 139.05, the Aug 4 high. A breach would be a positive development for bulls.
