BONDS: NZGBS: Rally Extends But Lags $-Bloc, Q3 CPI On Monday

The 20-year JGB auction delivered solid results across key metrics. The low price outperformed dealer forecasts, which were set at 97.80 according to a Bloomberg poll. Moreover, the cover ratio jumped to 3.9974x from 3.0853 in the previous outing and the auction tail shortened to 0.10 from to 0.13. 

• As noted in the auction preview, today’s offering featured an outright yield near its cycle high, 10bps above last month’s level.  
• Moreover, the 10/20 yield curve remained near its recent high, its steepest since 1999.
• This result was an improvement on the lacklustre performance observed in the 30-year JGB auction earlier this month.
• Post-auction, the 20-year JGB is slightly richer. 

The Japanese Ministry of Finance (MOF) sells Y614.9bn 20-Year JGBs:

• Average Yield: 2.654% (prev. 2.581%)
• Average Price: 98.00 (prev. 98.93)
• High Yield: 2.662% (prev. 2.591%)
• Low price: 97.90 (prev. 98.80)
• % Allotted At High Yield: 98.6020% (prev. 65.3666%)
• Bid/Cover: 3.9974x (prev. 3.0853x)

ACGBs (YM -0.5 & XM flat) are little changed on a data-light session

• Westpac’s lead index signalled slowing growth in August with the 6-month annualised rate turning negative (-0.16% down from July’s +0.11%) for the first time since September 2024. Almost all variables have eased over the last 6 months. It is signalling that growth on a 2q/2q basis could slow over the coming quarters.
• Cash ACGBs are little changed with the AU-US 10-year yield differential at +19bps.
• The bills strip is slightly weaker.
• RBA-dated OIS pricing is little changed across meetings today. A 25bp rate cut in September is given a 9% probability, with a cumulative 22bps of easing priced by year-end (based on an effective cash rate of 3.60%).
• The focus this week, however, will be on Thursday's August jobs data. Employment is forecast to rise 21k after July's +24.5k, with the unemployment rate expected to remain at 4.2%. It will also be important to monitor underemployment, the split between full-time & part-time and hours worked. The RBA is currently expected to leave rates unchanged on September 30 as it waits for Q3 CPI on October 29.