AUSSIE BONDS: Modest Bear-Steepener, US Tsys Bull-Steepen After Mixed Data

Gold fell 1.3% to $3300.77 on Tuesday with hopes of trade deals with the US reducing safe-haven flows and signals that Japan may alter its bond issuance boosting the US dollar (USD BBDXY +0.5%) and driving long-end Treasury yields lower. Bullion has started today up 0.1% to $3305.20 and is slightly higher this month. 

• Gold finished yesterday close to its intraday low of $3285.48 after a high of $3350.02 early in the day. It held just above initial support at $3282.8, 20-day EMA. Moving average studies are in a bull-mode position, highlighting an uptrend. Initial resistance is at $3365.9, 23 May high.
• While gold is down this week, trade talks are ongoing and any indication that they are faltering with major trading partners as well as signs of a further deterioration in the US fiscal position would likely drive it higher again.
• Equities rallied with the S&P up 2.1% and Euro stoxx +0.4%. The S&P e-mini is little changed so far today. Oil, copper and iron ore prices were lower. Silver prices fell 0.6% to around $33.28.

The overnight range was 142.98 - 144.45, Asia is currently trading around 144.20. A big bounce in USD/JPY overnight as some overextended short positions in the USD and Long-end global bonds were pared back. The 40yr bond auction today will have a lot of eyes on it and will have a big say on price action.

• JAPAN (MNI/Nikkei) Nikkei reports: "Japan's Finance Ministry will hold a meeting for primary dealers of Japanese government bonds on June 20, Nikkei has learned, and what may be on the agenda is spurring speculation over cutbacks to the ultralong-term bond supply." That's of potentially heightened interest given Reuters earlier reporting the MOF will consider skewing the composition of its current issuance programme away from super-long-end instruments (which saw a strong JGB rally overnight).
• Bloomberg - “ The US government is poised to receive a so-called golden share in United States Steel Corp. as a condition for approving Nippon Steel Corp’s proposed acquisition of the American company.”
• This move yesterday would have caught out a few shorts, but we are approaching resistance back towards 145.00 which should see some sellers emerge. 
• It is worth noting though we are heading into corporate month-end and this could see some USD demand over the next day or 2 making it uncomfortable for the considerable JPY longs that have been built up.
• The market has been very confident of a move lower in USD/JPY but with positioning quite large now the risk of pullbacks does increase. Resistance is now back towards 145.00/146.00 area first up. 
• Options : Close significant option expiries for NY cut, based on DTCC data: 145.00($2.14b), 143.00($1.98b), 144.00($1.67b). Upcoming Close Strikes : 143.00($3.34b May 30), 140.00($2.78b May 30).
• CFTC data shows Asset managers maintained their already extensive JPY longs, and leveraged funds continue to build on their newly initiated shorts.

• Data/Event : 40yr Debt Sale

  Fig 1 : USD/JPY Spot Daily Chart

  

  Source: MNI - Market News/Bloomberg

In local morning trade, NZGBs are 2-3bps richer after US equities, US tsys, and the DXY climbed following the long weekend. 

• Swap rates are flat to 3bps lower, with the 2s10s curve flatter.
• The RBNZ decision is announced today with the OCR widely expected to be cut 25bp to 3.25%, bringing total easing this cycle to 225bp. 23 out of 24 analysts surveyed by Bloomberg are forecasting this outcome.
• Given heightened uncertainty, the MPC is likely to retain its easing bias again, stating it has "scope" to cut rates further if required and its updated OCR path will be scrutinised to this end. A downward revision bringing the terminal to below 3%, estimated 'neutral', would signal a need for accommodation.
• The attention will be on the medium-term, which is likely to show a softer outlook driven by weaker trading-partner growth due to recent global uncertainty. The RBNZ said in April that "on balance, these developments create downward risks to the outlook for economic activity and inflation in New Zealand". See MNI RBNZ Preview here)
• Markets continue to price in 25bps of easing for today’s meeting, with 65bps expected by November 2025.
• On Thursday, the NZ Treasury plans to sell NZ$225mn of the 4.50% May-30 bond and NZ$225mn of the 4.25% May-36 bond.