JGBS: Long-End Rallies Ahead Of BoJ Policy Decision, Natl CPI Tomorrow Too

JGB futures are weaker and hovering near session lows, -27 compared to settlement levels, after today’s 20-year supply.

• The 20-year JGB auction delivered mixed results across key metrics. The low price underperformed dealer forecasts, according to a Bloomberg poll. Moreover, the cover ratio declined to 3.0853 from 3.1462x in the previous auction. The auction tail did, however, shorten to 0.13 from 0.18.
• Today’s result came despite the 20-year offering an outright yield near its cycle high, 10bps above last month’s level. Moreover, the 10/20 yield curve remained near its recent high, its steepest since 1999.
• "JAPAN VETERAN LDP LAWMAKER KONO: BOJ MUST GRADUALLY RAISE INTEREST RATES AS IT IS UNDESIRABLE TO KEEP REAL BORROWING COSTS NEGATIVE FOR A LONG TIME. 'BETTER TO START EARLY,' WHEN ASKED HOW SOON BOJ SHOULD RESUME INTEREST RATE HIKES. JAPAN MUST REVERSE WEAK YEN, SEEK SOMEWHAT STRONGER YEN." - RTRS
• Cash US tsys are slightly cheaper in today's Asia-Pac session after yesterday's modest losses.
• Cash JGBs are 1-3bps cheaper, with a steepening bias, across benchmarks. The benchmark 20-year yield is 2.4bps higher at 2.596% versus the cycle high of 2.655%.
• Swap rates are 1-2bps higher, with swap spreads tighter.
• Tomorrow, the local calendar will see Trade Balance, Core Machine Orders and Tokyo Condominiums for Sale data.

• RES 4: 130.26 High Aug 8
• RES 3: 129.93/130.06 50-day EMA / High Aug 14   
• RES 2: 129.64 20-day EMA
• RES 1: 129.18 High Aug 18  
• PRICE: 128.88 @ 05:40 BST Aug 19
• SUP 1: 128.64 Low Aug 15 
• SUP 2: 128.40 Low Apr 9
• SUP 3: 128.19 Low Mar 27 (cont) 
• SUP 4: 127.83 76.4% retracement of the Mar 11 - Apr 7 bull leg (cont)  

Bund futures are trading closer to their recent lows. The contract traded sharply lower Friday resulting in a breach of 128.84, the Jul 25 low and bear trigger. Note that the 129.00 handle marks the base of a broad range and a clear range breakout would strengthen a bearish threat. This would open 128.40 initially, the Apr 9 low. Strength above the 50-day EMA of 129.93, is required to signal a reversal. Resistance at the 20-day EMA is at 129.64.

ACGBs (YM -5.0 & XM -6.0) are weaker and near session cheaps.

• Westpac's consumer confidence is trending towards the breakeven 100-level. Sentiment rose 5.7% m/m to 98.5 in August, the highest since February 2022, before the last tightening cycle began. The RBA's third rate cut this year on August 12 helped to boost confidence but the improvement was not just seen amongst mortgage holders. Governor Bullock also pointed out that further easing is consistent with inflation at the target mid-point.
• Cash US tsys are slightly richer in today's Asia-Pac session after yesterday's modest losses.
• Cash ACGBs are 5-6bps cheaper with the AU-US 10-year yield differential -1bps.
• The bills are -1 to -7, with the strip steeper.
• RBA-dated OIS pricing is firmer across meetings today. A 25bp rate cut in September is given a 27% probability, with a cumulative 34bps of easing priced by year-end (based on an effective cash rate of 3.59%).
• Tomorrow, the local calendar will be empty.
• This week, the AOFM plans to sell A$1500mn of the 1.25% 21 May 2032 bond on Wednesday and A$300mn of the 4.75% 21 June 2054 bond on Friday.