JGBS: Little Changed Out To 20Y, 30Y Cheaper But Still Well Below Highs

At the end of last week, positive inflow momentum slowed into both South Korea and Taiwan. Taiwan's $500mn in net outflows was the largest daily outflow since Aug 22. As we noted through the second half of last week, inflow momentum for Taiwan had risen to the highest monthly levels and we have only just ticked past the half way point of September. Hence some consolidation was arguably not surprising. the 5-day sum of net inflows remains positive but is back under $1bn. At the end of last week, the SOX index fell in the US, but this had followed very strong gains on Thursday 

• It is a similar backdrop for South Korea, although it only saw modest outflow pressures on Friday. The Kospi has started this week firmly, up 1% earlier, as Samsung rose following positive news on a chip qualification test with Nvidia.
• Elsewhere, we saw another large outflow day from Thailand on Friday (which followed Thursday outflows of a similar magnitude). The SET index is back down from cycle highs, closing last Friday under 1300.
• In contrast, Indonesia saw a decent inflow day on Friday. Sentiment has steadily improved following the replacement of the FinMin. The JCI closed above 8050 on Friday, close to fresh intra-day cycle highs.  

Table 1: Asian Markets Net Equity Flows 

Source: Bloomberg Finance L.P/MNI 

TYZ5 is trading 112-24, unchanged from its close. 

• The US 2-year yield opens around 3.576%.
• The US 10-year yield opens around 4.137%, up 0.01 from its close.
• 10-Year Yields could not extend below 4.00% and have bounced as the Fed could not meet the markets very dovish expectations. The first buy-zone is now back towards the 4.15%/4.20% area where I suspect demand should return initially. A sustained break through 4.00% is needed for the focus to then turn towards the 3.80% area.
• MNI BRIEF: Miran Wants More 50 BP Fed Cuts To Neutral By Dec. Federal Reserve Governor Stephen Miran on Friday called for benchmark interest rates to drop by 50 basis point increments to get close to neutral by December, confirming his projection for year-end rates was the lowest among FOMC members at 2.75%-3%. He also said the Fed should not use its balance sheet to cap longer term rates
• Bloomberg - “Bond Traders Lean Into ‘Sweet Spot’ Amid Doubts About Fed’s Path. Managers say the "belly" of the yield curve, or securities maturing around the 5-year range, is a "sweet spot" due to its strong performance and potential for positive carry and capital appreciation.”
• Data/Events: Chicago Fed Nat Activity Index

In post-Tokyo trade on Friday, JGB futures closed stronger, +7 compared to settlement levels, despite US tsys finishing the Friday session slightly cheaper.

• Fed speakers returned from media blackout after Wednesday's 25bp rate cut: New Fed Governor Miran confirms in a CNBC appearance that he was the bottom dot on the new Dot Plot that saw rates ending the year at 2.75-3.00% (implying a total of 150bp of cuts going into the September meeting).
• MNI BOJ WATCH: Ueda Says Rate Hikes Will Come; No Timing Hints. Bank of Japan Governor Kazuo Ueda insisted that rate hikes remain in prospect but provided no further hints as to timing on Friday after the BOJ voted to keep the policy rate unchanged at 0.5% with two dissenters calling for a 25-basis-point hike.
• * When asked about the gap between his views and those of the two dissenters, Ueda noted that underlying CPI inflation is approaching 2% but is still below it. The more difficult environment for exporters may also apply downward pressure to Japan's economy and on inflation.
• * Bloomberg - "Shinjiro Koizumi, vying for the top position in Japan's ruling party, pledged to take steps to immediately counter inflation and boost wages. He won't call a snap election if he wins, Kyodo reported."
• Today, the local calendar will be empty.