BONDS: NZGBS: Bull-Flattener After Higher Inflationary Expectations

At the Tokyo lunch break, JGB futures are stronger, +44 compared to settlement levels, hovering just below session highs. 

• Cash US tsys are 1bp cheaper to 3bps richer, with a steepening bias, in today's Asia-Pac session after yesterday's modest gains.
• BoJ Governor Ueda has commented to local newspaper Sankei, noting the central bank will have to monitor the tariff impact and may need to respond if the economy is impacted. (per RTRS)
• The next BoJ policy meeting is at the start of May. Market expectations for rate hikes have been sharply scaled back over the past month in response to President Trump's announcement of reciprocal tariffs. Markets now assign a 0% probability to a 25bp hike at the May meeting, with less than a cumulative 50% chance not priced in by December.
• This marks a significant shift from just a month ago when a full hike was priced by October and a 50% probability was expected by June.
• Cash JGBs are 2-7bps richer across benchmarks, with a flattening bias. The benchmark 10-year yield is 3.9bps lower at 1.332% versus the cycle high of 1.596%.
• Swaps have also bull-flattened, with rates 2-8bps lower. Swap spreads are mixed.

AUDUSD bounced on the generally stronger-than-expected March China activity data but it has reversed those gains to be down 0.1% as China/HK equities sell off. The pair is now at 0.6338 after a low of 0.6323 early in trading following the decline in the S&P. The USD index is 0.2% lower.

• Safe haven currencies are outperforming today leaving AUDJPY down 0.5% to 90.42, after an intraday low of 90.38. AUDEUR is also 0.5% lower at 0.5595, close to today’s low. AUDGBP is down 0.25% to 0.4783.
• Kiwi is also risk sensitive but continues to marginally outperform Aussie. AUDNZD is down 0.2% to 1.0739 after a trough of 1.0738.
• The Westpac leading index for March fell 0.11% m/m leaving the 6-month annualised rate at 0.6% down from 0.9% in February. There are signs that it is being impacted by the effect on markets of recent global developments.
• Equities are generally weaker with the Hang Seng down 2.0%, CSI 300 -0.9% and S&P e-mini down 0.8%, but ASX up 0.3%. Oil prices are lower with WTI -0.3% to $61.12/bbl. Copper is down 0.7% and iron ore tested $97/t.
• Later Fed Chairman Powell speaks to Chicago’s Economic Club, also Hammack and Schmid appear. US March retail sales, IP and April NY Fed services & NAHB housing indices print. UK March CPI, euro area final March CPI and February current account are released. The BoC decision is announced and with expectations for unchanged rates.

• Bond futures jumped on a better-than-expected 1Q GDP release.
• The 10YR future jumped +0.15 post the release before backing away to be +.11 at 109.08
• The 10YR future remains established above all major moving averages; the nearest the 20-day EMA of 108.51.
• The 2YR future remains modestly higher by +0.01 at 102.55 and remains at the mid-point of the 20-day EMA of 102.53 and the 50-day EMA 102.56.
• Cash markets are strong with the CGB10YR lower by -1.5bps at 1.64%
• The data release today poses no immediate pressure for authorities for monetary policy action, rather providing them with time to assess the impact of the trade war.