JGBS: Long-end Pressures Resumes Overnight As Election Comes Into View
Long-end JGB yields saw notable upward pressure overnight, with 20-year yields up 6.5bps and 30/40-year yields up 10bps. Yields remain comfortably below the late-May highs, but fiscal risks/concerns appear to be back in focus with the July 20 Upper House election coming into view. After falling by 7bps on Friday amid renewed tariff concerns, 30-year yields are back above last Thursday’s 2.970% high (which came following a mixed 30-year auction).
- May wage data overnight was much weaker-than-expected, with nominal earnings rising 1.0% Y/Y (vs 2.4% cons, 3.0% prior) and real earnings falling 2.9% Y/Y (vs -1.7% cons, -2.0% prior).
- With PM Ishiba’s LDP party already pledging cash handouts of JPY20k as part of its election campaign, the weak wage data may be increasing concerns of more fiscal loosening/household support pledges ahead of the July 20 vote. A reminder that Fitch noted earlier today that while Japanese fiscal risks are contained in the near-term, long-term risks are more significant given ageing-related costs.
- The latest seat projection opinion polling ahead election for the House of Councillors shows PM Shigeru Ishiba's conservative Liberal Democratic Party (LDP) on course to lose a significant number of seats, and potentially for the governing coalition (alongside the Komeito party) to lose its overall majority in the upper chamber of the Japanese National Diet.
- Despite yields remaining shy of year-to-date highs, liquidity at the long-end of the JGB market remains a concern. Bloomberg’s JGB liquidity index is currently at its highest since the series began in 2008 (indicating worse liquidity).
- See our earlier Political Risk post for more colour on current election polling figures.
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JGB TECHS: (M5) Rallies Off Lows
- RES 3: 147.74 - High Jan 15 and bull trigger (cont)
- RES 2: 146.53 - High Aug 6
- RES 1: 141.48/142.95 - High May 2 / High Apr 7
- PRICE: 139.19 @ 15:53 GMT Jun 06
- SUP 1: 138.54 - Low May 22
- SUP 2: 136.57 - 1.382 proj of the Jan 28 - Feb 20 - Feb 26 bear leg
- SUP 3: 134.89 - 2.000 proj of the Jan 28 - Feb 20 - Feb 26 bear leg
JGBs have rallied off recent lows, however a bearish theme remains intact following the reversal that started Apr 7. A continuation lower would signal scope for an extension towards 136.57, a Fibonacci projection. On the upside, a reversal higher would instead refocus attention on 142.95, the Apr 7 high. The first important resistance to watch is 141.48, the May 2 high. A break of this level would be viewed as an early bullish signal.
US TSYS/SUPPLY: MNI UST Issuance Deep Dive: June 2025
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- May’s refunding round saw guidance as well as coupon sizes for the current quarter unchanged.
- The August round (Jul 28-30) could prove more compelling, reflecting both pressure at the long end of the Treasury curve as well as a shifting fiscal outlook amid tariff revenues contrasted with impending tax cuts (not to mention the likelihood of approaching the debt limit at around that time if it’s not lifted).
- Future Coupon Upsizing: We’ve seen some expectations that Treasury could lean against some of those trends in the August refunding, with potential signals if not immediate action on adjusting buybacks or even reducing issuance duration in order to reduce pressure on the long end. MNI’s current expectation is that coupon sizes will only be increased in early 2026. We will update in our next Deep Dive at end-June, with our full refunding preview coming in late July.
- Upcoming issuance: June is set to see $315B in nominal Treasury coupon sales, in addition to $23B in 10Y TIPS and $28B FRN for a total of $366B. Sales for the month start in the coming week, on Tuesday June 10 with $58B of 3Y Note, Wednesday June 11 with $39B of 10Y Note, and Thursday June 12 with $22B of 30Y Bond.
- May Auction Results: Against a backdrop of continued steepening pressure for global sovereign curves, May’s coupon auctions saw strong sales at the short-end/belly contrasted with tails at the long-end.
US FISCAL: Extraordinary Treasury Measures Tick Up As Cash Depletes
Treasury had $84B in "extraordinary measures" available to keep the government financed as of June 4 per a release Friday. That is up from $68B a week earlier though Treasury has exhausted three-quarters of the total initially available ($362B) when the debt limit impasse began in January.
- Combined with a pullback in Treasury cash ($376B), the total resources available to avert an "x-date" in the summer are down to a total $460B, the lowest since April 10 before the annual tax take accelerated.
- There will be another uptick in Treasury cash late next week/early the following week around the mid-June tax date, but this is likely to be the last major uplift before the summer at which point x-date speculation will pick up if Congress hasn't passed a debt limit increase by then.
