GLOBAL MACRO: May CPI Data Show Rising Price Pressures

The Japanese Ministry of Finance (MoF) will today sell Y2.6tn of 10-year JGBs. The MoF last sold 10-year debt on 2 April 2026. This month's auction offers an outright yield 20bps above the level of last month's auction and at a fresh cycle high.

• The 2s/10s yield curve is ~15bps steeper last month’s auction and at a cycle high. By contrast, the 7s/10s curve, a measure of value between JB1 futures and the 10-year, is little changed from last month and sits comfortably inside the past year’s range.
• Sentiment toward longer-dated bonds remains pressured by the Middle East conflict.
• MNI (Tokyo): Apart from the three Bank of Japan board members who proposed raising rates in April, at least two other members saw a possible hike at the June meeting, according to the summary of opinions from the April 27-28 meeting.
• “It is quite possible that the Bank will raise the policy interest rate from the next [Monetary Policy Meeting] MPM onward, even if the future course of the situation in the Middle East remains unclear,” one member said.
• Against this backdrop, it remains to be seen whether the current 10-year yield level will be sufficient to improve demand in today's auction.
• Results are due at 0435 BST / 1235 JT.

Not only have fuel and fertiliser prices risen sharply due to the Iran War but so have tanker rates even on non-Gulf routes. Bulk carrier rates are also higher and while container vessels have seen rates rise this month and last, they are lower on a year ago and well below Covid levels. Increased seaborne shipping costs are going to put pressure on already rising input costs and increase the chances of them being passed onto customers more broadly – a worry for most central banks currently.

Global dirty tanker rates

Source: MNI - Market News/LSEG

• Tanker rates from the Gulf jumped already in February, as firms anticipated trouble in the Middle East, but then soared further in March after the Iran War had begun. Even non-Gulf routes rose in February/March but eased in April/May.
• Asia is heavily reliant on oil from the Middle East. The Gulf to Singapore, a major refining hub, rose 68.7% m/m and 165.3% m/m in February and March respectively. Rates increased further in April/May but at a lot slower pace and they are now over 6 times the level a year ago and their highest since the data began in 2006.
• Other routes have not increased as much with the May average of the Gulf to Europe around 4 times higher than a year ago and the Gulf to US around double as is the North Sea-US.
• The Baltic Freight Dry Index began trending higher already in mid-2025 but the May average is now the highest since Covid-impacted October 2021. Bulk goods rates are now 120% higher than a year ago.
• FBX global container rates rose in April/May but were down over February/March and are still down 8.1% y/y but China to the Mediterranean and China to the North American east coast are both up 15.9% y/y.

Global shipping rates

Source: MNI - Market News/LSEG

The Japanese Ministry of Finance (MoF) will today sell Y2.6tn of 10-year JGBs. The MoF last sold 10-year debt on 2 April 2026. The auction drew cover of 2.5651x at an average yield of 2.350%, an average price of 100.40, a high yield of 2.395%, a low price of 100.04, with 54.1553% of bids allotted at the high yield.

• Last month, the 10-year auction delivered the weakest result since May last year. The bid-to-cover ratio was 2.57x vs 3.3x at the last auction; 12-month average is 3.28x. The tail was 0.36 vs 0.06 for prior sale. Cut-off price was 100.04 vs 100.42 in a Bloomberg survey.
• This performance came despite an outright yield hovering just below the cycle high.
• Results are due at 0435 BST / 1235 JT.