US TSYS: Little Changed, Light Calendar Today

ACGBs (YM +3.0 & XM +1.5) are modestly richer on a data light session. 

• With cash US tsys 2-3bps cheaper in today’s Asia-Pac session, the AU-US 10-year yield differential is 2bps lower at +36bps, the lowest level this year.
• Oil prices rallied early in APAC trading after news of US attacks on military sites in southern Iran in retaliation for its downing of a US helicopter. They were then supported again by reports of further explosions in southern Iran, which the US confirmed were close to the Strait of Hormuz.
• Cash ACGBs are 1-3bps richer with the 3/10 curve steeper.
• The latest ACGB Oct-37 auction saw solid demand, with the weighted average yield coming in 0.59bps through prevailing mid-yields, according to Yieldbroker, continuing the trend of firm pricing at recent ACGB auctions. Moreover, the cover ratio rose to a solid 4.2450x from 3.7389x
• The bills strip pricing is +2 to +5 across contracts.
• RBA-dated OIS pricing shows tightening across all meetings, with the probability of a 25bp hike rising from 6% for June to 52% by September and 80% by December 2026.
• Tomorrow, the local calendar will see Consumer Inflation Expectation data. 

Bloomberg Finance LP

After yesterday's bounce major equity bourses in the region were weak again Wednesday as oil headed higher and uncertainty in the US Iran war dampened risk appetite.  The NIKKEI is down -1.7% as all major AI Tech names (bar Tokyo Electron) fell today between 3-4%. Domestic economic data added to the market's unease. Japan's PPI jumped by 6.3% YoY in May, vastly outstripping analyst forecasts of 5.6%. The spike was primarily driven by soaring energy costs and the ripple effects of regional conflicts on critical shipping lanes.  Investors are becoming increasingly concerned about potential rate hikes both in Japan and the US ahead of Wednesday's May US CPI, with expectations it could rise to +4.2% and bring forward a rate hike in the US.  

The KOSPI fell heavily today with SK Hynix and Samsung down over 7%.  Given the launch recently of leveraged AI ETFs in Korea, the liklihood going forward for the AI / tech names is higher volatility given the increased leverage.  

China stocks fell today as surging domestic wholesale inflation, a broad global retreat from technology sectors, and escalating U.S.-Iran military tensions heavily weighed on investor sentiment.  Whilst over the last year the relationship between PPI and CPI has broken down, the fact that the driver of the higher PPI is oil - and oil price rises impact almost everything - could see a reestablishment of the relationship and spell higher CPI in the months to come.  Onshore bourses the CSI 300 and Shanghai are both down around -1% whilst Shenzhen is down -2% and Hang Seng -1.1%

NZGBs closed slightly off session bests, with benchmark yields 2-3bps lower. 

• With cash US tsys 2-3bps cheaper in today’s Asia-Pac session, the NZ-US 10-year yield differential dipped into negative territory (-1bp) for the first time since November.
• Oil prices rallied early in APAC trading after news of US attacks on military sites in southern Iran in retaliation for its downing of a US helicopter. They were then supported again by reports of further explosions in southern Iran, which the US confirmed were close to the Strait of Hormuz. Also Iran targeted US bases in Kuwait, Jordan and Bahrain and warned countries in the region not to allow the US to use their territory. Once the US said that its action was completed, oil prices eased and are currently slightly higher on the day and above the intraday low.
• Swap rates closed 1-2bps higher, with implied swap spreads wider.
• RBNZ-dated OIS pricing is little changed across meetings. 23bps of tightening is priced for July, while February 2027 assigns 87bps.
• The local calendar will be empty until Friday's release of BusinessNZ Manufacturing PMI and Net Migration data.
• On Thursday, the NZ Treasury plans to sell NZ$225mn of the 3.00% Apr-29 bond and NZ$225mn of the 3.50% Apr-33 bond.