JAPAN DATA: Jan PPI In Line, Import Prices Edge Higher In Y/Y Terms

Today’s auction result extended the recent trend of firm pricing for ACGBs, with the weighted average yield printing 0.27bps through prevailing mids, according to Yieldbroker. However, demand weakened, as reflected by a cover ratio of 2.3433x, down from 3.4333x from the previous auction.

• The weaker demand came with the outright yield ~5bps lower than the previous auction, approximately 10bps below the cycle high.
• The slightly flatter 10s/30s yield curve versus the previous outing, around 25bps below its recent high, was potentially another negative technical factor.
• The recent deterioration in sentiment toward longer-dated global bonds may have also weighed demand.
• In the wake of the auction, the ACGB Jun-54 has traded ~0.5bps cheaper in the secondary market.

The Westpac consumer sentiment index slipped further in Jan to 1.7% (after a 9.0% fall in Dec last year). This puts the index back to 92.9, roughly where we were in Oct last year. Diminished rate cut prospects appear to be weighing on sentiment. Westpac notes: "The main catalyst continues to be a sharp turn in interest rate expectations. Nearly two thirds of consumers with a view now expect mortgage rates to move higher over the next 12 months, more than double the share back in September." Today's sentiment update comes after a yesterday's stronger than expected Nov household spend update. The chart below plots the headline sentiment index (orange line) versus household spending y/y, with recent gyrations in sentiment not impacting spending terms yet. From an RBA standpoint, its likely to be a watch point, to see if weaker sentiment leads to lower spending outcomes. Hence likely no change to the near term outlook. 

• Westpac also noted: "Near-term expectations for family finances and the economy recorded the sharpest deteriorations in January, declining 4.5% and 6.5% respectively. This was partially offset by a small improvement in assessments of family finances vs a year ago (+2.3%) and slight gains for the ‘economic outlook, next 5 years’ and ‘time to buy a major household item’ sub-indexes (+0.9% and +0.2% respectively)." 

  Fig 1: Westpac Consumer Sentiment & Household Spending Y/Y 

Source: Westpac/Bloomberg Finance L.P./MNI

The AOFM sells A$300mn of the 4.75% 21 June 2054 Treasury Bond, #TB169:

• Average Yield (%): 5.1953 (prev. 5.2512)
• High Yield (%): 5.2000 (prev. 5.2525)
• Bid/Cover: 2.3433x (prev. 3.4333x)
• Allotted at Highest Accepted Yld as % of Bid at that Yld (%): 30.8 (prev. 80.5)
• Bidders: 44 (prev. 47), successful 24 (prev. 13), allocated in full 16 (prev. 6)