JGBS AUCTION: Mixed Demand Metrics For 20Y Auction
Mar-12 03:44
The 20-year JGB auction delivered mixed results across key metrics. The low price underperformed dealer forecasts, which were set at 96.10 according to a Bloomberg poll. However, the cover ratio increased to 3.4594x from 3.0557x in the previous auction and the auction tail shortened dramatically to 0.20 from 0.55.
- As noted in the auction preview, today’s offering featured an outright yield at a cycle high, 25-30bps higher than last month’s auction.
- Moreover, the 10/20 yield curve was dramatically steeper after bouncing off its lowest point since mid-2023.
- Additionally, the 20-year JGB had cheapened from its most expensive valuation within the 10/20/30 butterfly since late 2022.
- This result was aligned with the mixed performances observed in the 30-year JGB auction earlier this month.
- Post-auction, the 20-year JGB is little changed.
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JGBS: Cash Bonds Holding A Bear-Steepener At Lunch
Feb-10 03:30
At the Tokyo lunch break, JGB futures are weaker, -9 compared to the settlement levels.
- According to MNI’s technicals team, a clear downtrend in JGB futures remains intact and the latest fresh cycle lows reinforce this condition. Note too that moving average studies on the continuation chart are in a bear-mode setup, highlighting a clear downtrend. The move down exposes the 140.00 psychological handle next. For bulls, a reversal would open 142.73 and 144.48, the Dec 9 and Nov 11 high respectively. For now, short-term gains are considered corrective.
- Outside of the previously outlined Current Account Balance and bank Lending data, there hasn't been much by way of domestic drivers to flag.
- Cash US tsys are ~1bp richer in today’s Asia-Pac session after Friday’s heavy post-payrolls session. Headlines have crossed from Bloomberg, with US President Trump stating that the US will announce tariffs of 25% on all steel and aluminium imports from Monday. Trump didn't announce a time when these tariffs will take effect.
- Cash JGBs are flat to 2bps cheaper across benchmarks, with a steepening bias. The benchmark 10-year yield is 2.2bps higher at 1.324%, a fresh cycle high.
- Swap rates are flat to 1bp higher. Swap spreads are tighter.
STIR: BoJ-Dated OIS Pricing Extends February Firming
Feb-10 03:14
BoJ-dated OIS pricing continues to firm in February, with rates rising 1–4bps today, led by the October contract.
- Recent economic data from Japan, including stronger-than-expected wage growth and household spending, has fueled speculation that the BoJ may accelerate and extend its rate hikes beyond prior market expectations.
- Markets currently assign a 2% probability to a 25bp hike in March, a cumulative 51% chance by June, and now fully price in a 25bp increase by September—a shift from late January when a hike wasn’t fully priced in until October.
Figure 1: BoJ-Dated OIS – Today Vs. Friday 31 January
Source: MNI – Market News / Bloomberg
STIR: OIS Pricing Firmer Today But RBA Cut In Feb Seen As A Done Deal
Feb-10 02:27
RBA-dated OIS pricing is flat to 3bps firmer across meetings today.
- A 25bp rate cut is more than fully priced for April (128%), with the probability of a February cut at 88% (based on an effective cash rate of 4.34%).
- The last time the market was this confident about a rate cut was in March 2020, when expectations proved correct—the RBA cut rates twice that month, once at the scheduled meeting and again on the 20th.
- Notably, the last time the RBA disappointed market expectations by not cutting when a more than 75% probability was priced was in November 2012. However, even then, the RBA cut by 25bps in the meetings on either side—October and December 2012.
- Based on historical patterns, it would be highly unusual for the RBA not to follow through on market expectations, especially since it has made no attempt—officially or unofficially—to steer expectations away from a cut, as it has done in the past.
Figure 1: RBA Cash Rate Vs. 1st OIS Contract
Source: MNI – Market News / Bloomberg
