JAPAN DATA: Local Investors Sell Offshore Bonds & Stocks
Local investors sold offshore bonds for the second straight week, see the table below. This does fit with some slight easing in global bond returns in recent weeks. Cumulative net buying of offshore bonds has still been very strong in recent months (+¥9.3trln since the start of May). Local investors also sold offshore equities. We have now seen local investors sell offshore stocks in 3 out of the last 5 weeks (with cumulative outflows of nearly ¥1.5trln since late June).
- In terms of inbound inflows into Japan equities/bonds, offshore investors bought local stocks, albeit at a reduced pace. Since the start of April, or the past 18 weeks, we have only seen one week of net selling of local equities by offshore investors.
- On the bond side, we saw the third straight week of outflows, albeit at a fairly modest pace. Offshore investors have sold local bonds in four out of the last five weeks.
Table 1: Japan Weekly Offshore Investment Flows
| Billion Yen | Week ending Aug 1 | Prior Week |
| Foreign Buying Japan Stocks | 193.0 | 743.3 |
| Foreign Buying Japan Bonds | -87.5 | -184.6 |
| Japan Buying Foreign Bonds | -526.3 | -326.3 |
| Japan Buying Foreign Stocks | -752.1 | 207.3 |
Source: Bloomberg Finance L.P./MNI
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US TSYS: Cash Open
TYU5 is trading 111-00, up 0-02+ from its close.
- The US 2-year yield opens around 3.89%, down 0.01 from its close.
- The US 10-year yield opens around 4.38%.
- (Bloomberg) -- In the week ended July 1, asset managers' net long positioning in both 5- and 10-year note futures surged to record amounts, according to latest CFTC data released Monday. Over the reporting week, net positioning among asset managers in 5-year note futures extended by $20m/DV01 and by $12.1m/DV01 in 10-year note futures, pushing net positioning in both to record longs.
- (Bloomberg) -- US interest-rate strategists at JPMorgan recommended exiting their week-earlier call to short two-year Treasury notes following the surge in yields sparked by June employment data released Thursday.
- “While we could see front-end yields continue to move somewhat higher from current levels if the June inflation data released later this month shows a material acceleration from recent months, we expect yields to remain within a fairly tight range through the summer”
- The 10-year yield has seen a strong bounce in reaction to the better NFP print. This 4.35/40% area offers those who would like to express a long the opportunity to fade. A sustained close back above 4.45% area though would not be great for the bulls and would see more of the longs prepared back.
- Data/Events: NFIB Small Business Optimism
STIR: RBA Dated OIS Almost Fully Priced For A 25bp Cut Today
RBA-dated OIS pricing is slightly firmer on the day across meetings ahead of today’s RBA Policy Decision.
- A 25bp rate cut this week is given a 94% probability, with a cumulative 79bps of easing priced by year-end (based on an effective cash rate of 3.84%).
- Notably, pricing across meetings is 14-30bps softer than levels before the May 20 RBA Meeting.
Figure 1: RBA-Dated OIS – Current Vs. Pre-RBA (May)
Source: Bloomberg Finance LP / MNI
JGBS: Futures Unchanged Overnight, US Tariffs Remain In Focus Ahead Of Aug 1
In post-Tokyo trade, JGB futures closed unchanged compared to settlement levels, despite US tsys finishing with a modest bear-steepener (1-6bps cheaper).
- Bloomberg - President Donald Trump's plan to impose 25% tariffs on goods from Japan starting Aug. 1 may have negative implications for the US bond market as soon as this week. Japan is the largest foreign holder of US Treasuries. If investors there view Trump's move as unacceptable, they could skip a few Treasury auctions and have a meaningful bearish effect on bond prices.
- Bloomberg - "Meiji Yasuda Life Insurance Co. plans to avoid actively investing in Japanese super-long-term government bonds for the next 1-2 years as interest rates may rise and supply pressures build."
- Today’s US calendar will see NFIB Small Business Optimism, Consumer Credit and a $58B 3-year note auction. However, the main focus will be on the FOMC minutes for the June meeting.
- Today, the local calendar will feature trade balance and Bank Lending data alongside 5-year supply.
