BONDS: NZGBS: Closed With A Bear-Steepener After RBNZ’s On-Hold Decision

JGB futures sit slightly above end Friday Friday levels from last week. The June future last 139.20, -.15 versus settlement levels. Outside of a modest rise at the start of the session, we have traded fairly tight ranges so far in Monday trade. A modest rebound in US Tsy 10yr futures has likely seen some positive spill over. 

• The local data calendar saw positive Q1 GDP revisions, but these didn't impact JGB sentiment. Consumption was revised slightly higher, while inventories contributed more to growth than the initial estimate. Business spending remained positive but was revised down. Overall q/q growth was flat (from an initial estimate of -0.2%).
• For cash JGB yields, the bias is higher, but we sit away from best levels for the 10yr. We were last near 1.48% (session highs rest at 1.491%). It has been a similar backdrop across other parts of the curve. The 30yr has seen some slight outperformance in yield terms, up close to 4bps, last around 2.92%.
• Focus remains on how government issuance may chance, and/or BOJ bond buying shifts as well. We haven't seen any fresh developments on this front today though.
• PM Ishiba has been on the news wires stating that public and financial market trust in Japan's finances must be maintained (via RTRS). 

May Thai inflation was stronger than expected with headline down 0.6% y/y but still a deterioration from April’s -0.2% y/y, while core rose 1.1% y/y up from 1.0% due to prepared food and housing. JP Morgan expects deflation to continue in Thailand through Q3 2025 resulting in only 0.2% inflation in 2025 below the Bank of Thailand’s 1-3% target corridor. Thus it continues to “pencil in three more 25bp rate cuts” in June, August and October bringing the terminal rate to 1.0%.

• JP Morgan notes that “on a sequential basis, headline and core CPI rose 0.3%m/m, sa and 0.2%m/m, sa respectively, while the underlying trend continued to downshift.”
• “The stronger-than-expected print was largely driven by higher core (0.3%pt. contribution to the monthly increase of 0.26%m/m, sa;) and energy prices (0.03%pt.) with a partial offset from raw food prices (-0.07%pt.). Within core CPI, prepared food (0.14%pt.) and housing (0.08%pt.) prices posted sharp gains.”
• “The outsized increase in prepared food prices last month (0.14%pt. vs. 2018-24 average: 0.03%pt.) was driven primarily by the fast food/delivery sub-component. We are inclined to think that it reflects ad-hoc/seasonal re-pricing by service providers at this point, given the lack of input cost pressures (e.g., labor, fuel, raw food).”
• “Indeed, supply-demand dynamics in the agricultural sector have improved significantly this year, leading to downward pressures on both wholesale and retail raw food prices.”
• “Stripping out prepared food, our so-called core-core CPI gauge fell into deflation territory and continues to show weak demand-pull price pressures.”
• “The outlook for energy CPI remains benign on low and stable global crude oil prices.”

Asian equity markets are mostly trading with a positive footing in the first part of Monday trade. The Nikkei 225 is up around 1%, likewise for the Hang Seng in Hong Kong. The Kospi continues to be an outperformer, up over 1.6%. 

• We had a positive lead from US markets on Friday, the SPX up a little over 1%. US data beats, particularly on the wages may have helped. Also, today in London we have US-China trade talks resuming. Positive themes around exports of rare earths resuming to the US and the EU is another positive ahead of these talks.
• Fallout from protests in major US cities (with Trump calling in the National Guard for Los Angeles) is not impacting US equity sentiment greatly at this stage.
• Still, China's CSI 300 is up only modestly, last +0.18% at the lunchtime break, putting the index near 3881. Earlier China data showed CPI remain in deflation, while PPI deflation worsened further. This underscores on-going policy support needs in 2025. On the trade front, export and imports where both below forecasts, with trade to the US continuing to fall.
• The HSI is up +1% at the break, with the tech sub index up +2.3% at this stage.
• The Kospi continues to outperform, up over 1.6%. This puts the index within striking distance of July 2024 highs around 2900. Offshore investors have bought $348mn of local shares today. Optimism around the domestic outlook continue to buoy sentiment.
• In South East Asia, gains are more modest, mostly under 0.50%. Australian and Indonesian markets are closed today.