JGBS: Goldman Expect BoJ Hikes To Re-anchor 30s vs. 5s & 10s
Goldman Sachs note that “the recent rise in 30-Year JGB yields offers mixed signals for global rates markets. On the one hand, the weakness is surprisingly localised to 30s - there has been relatively little repricing across shorter tenors or other Japanese assets. Technical and positioning factors may have exacerbated the move”.
- “On the other hand, the rise in JGB yields since 2021 is consistent with the surprising durability of Japanese inflationary pressures, as it has been in all G10 markets. This suggests that while there may be local explanations for the near-term volatility in 30s rates, it is likely a symptom of an ongoing shift higher in equilibrium rates”.
- “Demand for long-dated duration has fallen from ALM investors as liabilities shrink with higher rates. At the same time, fiscal deficits and QT keep bond supply elevated. These common global pressures point to an unfavourable climate for duration. So far spillovers from JGBs have been modest, but this may change should the move extend, especially given how competitive JGB yields now look on a hedged basis vs major market peers”.
- Goldman expect that “a return to gradual BoJ hikes should begin to re-anchor the long-end, driving higher 5- and 10-Year yields vs. 30s, coupled with a cautious but continued stance on QT led by the belly. And while recent volatility is unlikely to be sustained, the move in 30y JGB yields serves as a warning that bouts of weakness in global long-end bonds are a pattern not an aberration”.
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MNI: SWEDEN MAR UNEMPLOYMENT 8.5%
- MNI: SWEDEN MAR UNEMPLOYMENT 8.5%
EURGBP TECHS: Support Remains Intact
- RES 4: 0.8800 Round number resistance
- RES 3: 0.8781 2.236 proj of the Mar 3 - 11 - 28 price swing
- RES 2: 0.8768 High Nov 20 ‘23
- RES 1: 0.8624/0.8738 High Apr 21/ High Apr 11 and the bull trigger
- PRICE: 0.8601 @ 06:55 BST Apr 22
- SUP 1: 0.8520 20-day EMA
- SUP 2: 0.8477 61.8% retracement of the Mar 28 - Apr 11 rally
- SUP 3: 0.8442 50-day EMA
- SUP 4: 0.8415 76.4% retracement of the Mar 28 - Apr 11 rally
The latest pullback in EURGBP appears corrective - for now. The retracement has allowed a recent overbought trend condition to unwind. Support to watch lies at 0.8520, the 20-day EMA. Below this level, support at the 50-day EMA is at 0.8442. The area between these two averages represents a key support zone. For bulls, a resumption of gains would refocus attention on 0.8738, the Apr 11 high and bull trigger.
EUROZONE ISSUANCE: EGB Supply - W/C 21 April
Slovakia, Germany and Italy are all due to hold auctions this week. There is also the potential for Austrian, Belgian and Finnish syndications in upcoming weeks, although the timing of these are more uncertain than usual given the recent market volatility. We look for estimated gross issuance for the week of E16.4bln, down from E34.0bln last week.
- This morning, Slovakia will hold a SlovGB auction. On offer will be the 3.00% Feb-28 SlovGB (ISIN: SK4000024683), the 3.75% Mar-34 SlovGB (ISIN: SK4000024865), the 3.75% Feb-35 SlovGB (ISIN: SK4000022539) and the 2.00% Oct-47 SlovGB (ISIN: SK4120013400).
- There will be no non-competitive auction of the 3.75% Mar-34 SlovGB and there is only E241.5mln available before the issue reaches its terminal size of E5.0bln. We would therefore expect as long as there are sufficient bids that the full E241.5mln is sold at this auction.
- Also today, Germany will sell E5bln of the new 1.70% Jun-27 Schatz (ISIN: DE000BU22098).
- Tomorrow, Germany will return to the market to issue E4bln of the 10-year 2.50% Feb-35 Bund (ISIN: DE000BU2Z049).
- To conclude the week, Italy will hold a BTP Short Term auction on Thursday. We expect a reopening of the 2.55% Feb-27 BTP Short Term (ISIN: IT0005633794). Details will be announced today (T-2 rather than the usual T-3 due to the public holiday).
- Note that the BTPei line has been cancelled due to the syndicated launch of the May-56 BTPei via syndication.
NOMINAL FLOWS: The upcoming week April sees redemptions of E9.6bln, E9.1bln of which is from a formerly 4-year Austrian RAGB and E0.5bln is from a formerly 5-year Austrian fixed USD bond. Coupon payments for the week total E9.8bln of which E9.1bln are French and E0.4bln are Belgian. This leaves estimated net flows for the week at negative E2.9bln, versus positive E11.6bln last week.
