JGB TECHS: (H5) Sharp Bounce Off Lows

In post-Tokyo trade, JGB futures closed sharply higher, +31 compared to settlement levels, after US tsys finished Monday’s session 7-9bps richer. 

• The rally started in yesterday’s Asia session as Chinese AI startup DeepSeek shook the broader market. New competition for US AI developers weighed heavily on chip stocks, the tech-heavy Nasdaq falling over 3% and Nvidia down 15%, spurring heavy outright buying and short covering across the board in US tsys.
• The focus remains on Wednesday's FOMC policy announcement, no move expected, as well as today's heavy slate of US corporate earnings: PACCAR, Sysco Corp, Synchrony Financial, Lockheed Martin Corp, Veradigm, Royal Caribbean, Polaris Inc., Boeing, NextEra Energy, JetBlue Airways, General Motors, Kimberly-Clark Corp, Invesco, Starbucks, Qorvo and Stryker Corp.
• In Asia, attention will remain on the tech-related equity fallout, although several Asian markets, including China, are closed for LNY celebrations.
• Today, the local calendar will see PPI Services and Machine Tool Orders data alongside BoJ Rinban Operations covering 1-5-year and 10-25-year JGBs. The market expects a 3.2%y/y outcome for PPI Services (prior was 3.0%).

The Australian Office of Financial Management (AOFM) will today sell A$300mn of the 4.75% 21 June 2054 Treasury Bond. The line was last sold on 22 May 2024 for A$800mn. The sale drew an average yield of 4.5951%, at a high yield of 4.5975% and was covered 2.8233x. There were 43 bidders, 19 of which were successful and 11 were allocated in full. The amount allotted at the highest yield as a percentage of the bid at that yield was 70.1%.

• This week's ACGB supply is below the recent average weekly issuance of A$1.5bn, with A$800mn of the 2.50% 21 May 2030 bond to be issued on Friday.
• According to the MYEFO 2024-25 Issuance Program Update from the Australian Office of Financial Management (AOFM), total issuance has been revised to around $95 billion ($46.4 billion has been completed). This includes around $2 billion of Green Treasury Bond tenders ($600 million has been completed). Issuance of Treasury Indexed Bonds is expected to be around $3 billion ($1.7 billion has been completed).
• The bidding at today’s auction is likely to be influenced by several factors. The outright yield is around 35bps higher than the previous auction level but still around 35bps lower than the November 2023 high.
• At around 50bps, the 10/30 yield curve is sitting in the middle of the range it has traded in since September last year.
• It is also important to acknowledge that the sentiment towards longer-dated global bonds has on balance improved over the past month.
• Results are due at 0000 GMT / 1100 AEST.

• Nvidia shares plunged 17%, erasing $589b in market value, the largest single-day loss in U.S. stock market history, amid concerns over Chinese AI startup DeepSeek's low-cost, competitive AI model. The selloff, which rippled through broader markets, was driven by fears that DeepSeek's efficiency-focused technology could disrupt the AI industry's reliance on expensive, high-end chips, a market dominated by Nvidia. DeepSeek's rise, despite U.S. export bans on advanced semiconductors, highlights China's growing innovation in AI.
• Broader markets followed suit, with the S&P 500 shedding 1.5% and the Nasdaq 100 dropping about 3%. Energy and utilities stocks tied to AI trends were also hit hard, with Vistra Corp., GE Vernova, and Constellation Energy suffering record declines of 28%, 22%, and 21%, respectively.
• In contrast, Apple rose 3.3%, reclaiming its position as the largest company by market value, while Meta gained 1.9%. Smaller tech companies showed mixed results: Aurora Mobile surged 142% after announcing DeepSeek integration, while MicroCloud Hologram gained 8.4%.