US TSYS: J.P.Morgan On Mid-Month Supply Matters
J.P.Morgan note that Thursday will see “Treasury announce mid-month supply for auction next week. We expect $46bn 3-Year notes, $2bn less than last month, as well as $34bn reopened 10-Year notes and $20bn reopened 30-Year bonds, unchanged from the last reopening auctions in March. We think the 3-Year roll should open at +3.5bp.”
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US TSYS: Slightly Flatter Start
TYM2 last -0-02 at 128-01+, operating around the middle of the contract’s early 0-05+ range, with a lack of meaningful headline flow observed since the re-open. Cash Tsys run little changed to 2.0bp richer, bull flattening.
JPY: Wages Return To (Unimpressive) Growth
USD/JPY rose in tandem with U.S. Tsy yields Monday, while soaring commodity prices prevented the yen from drawing more support from broader risk aversion.
- The rate last trades flat at Y115.33, with bulls looking to a move through Feb 15 high of Y115.87. A break above that level would open up Feb 10/Jan 4 highs of Y116.34/35. On the flip side, a slide through Feb 24 low of Y114.41 would draw attention to Feb 2 low of Y114.16.
- Cash earnings growth picked up and registered at +0.9% Y/Y in January, topping the median estimate of +0.1%. Although wages returned to growth, they only increased by a small margin.
- Elsewhere, Japan's BoP current account deficit widened more than expected to Y1.1887tn in January from -Y370.8bn prior.
- Eco Watchers Survey headlines the local docket during the remainder of today. Looking further afield, final GDP (Wednesday), PPI (Thursday) & BSI Survey (Friday) are due this week.
AUSSIE BONDS: Westpac: What Does Growing Stagflation Fear Mean For The Curve?
Westpac note that “with the war in Ukraine set to impact sentiment across Europe and the globe, impacting growth prospects, at the same time as the price of oil surged above US$120 per barrel, energy costs surging in Europe and elsewhere, and the U.S. CPI this week set to again print at 1970’s levels, the market is beginning to discuss the possibility of stagflation. The question is what that might mean for the curve? A lower growth expectation could see the market continue to re-evaluate rate hike prospects, and given how much is already factored-in, that would be a bull steepening influence. On the other hand, should that inflation expectation become untethered than the curve could bear steepen? Perhaps that is why the recent curve flattening impulse has slowed. So it will be important to monitor market inflation expectations as measured by the 5y5y BEI. This has been rising recently but remains below 2.5%, which is the middle of the RBA’s target band. That suggests that the market continues to believe that the current inflation surge will be temporary. Presumably that is because they believe that central banks will act decisively to avoid embedding inflation expectations. That is certainly our view, and it suggest that the curve will remain in a secular flattening trend on average as we head into the first hike. Looking at various curve segments, a sharp but not too extended, front-loaded tightening cycle, should see the 2-/5-Year swap curve flatten as well. Note that, in contrast to other curve segments, it is still near its recent peaks.”
