OIL: Oil Down Following US Ukraine Peace Plan News, EIA US Inventories Out Later

A day of consolidation for bonds after last week's Fed Comment induced rally.  TYZ5 is down -02 at 113-12+ as what seems cooling trade tensions give equity markets a boost.  TYZ5 maintains its position above all major moving averages, the nearest being the 20-day EMA at 113-01.

• The US 2-Yr ended last week down -5bps at 3.45% having now traded below 2024 lows and has backed up to 3.47% in the Asia trading day.  
• The US 5-Yr ended last week down -3bps at 3.59% with the break below 3.60% possibly indicating the resetting of recent ranges, but has edged higher back to 3.60% today.  
• The US 10-Yr finished last week at 4.01% unable to hold below 4.00%. The 4.00% - 4.20% range has held of late and whilst the 10-Yr closed at 3.97% Thursday, ultimately as risk sentiment improved moderately, it was unable to hold below and reset recent ranges. It has inched higher again today to be at 4.02%

• The US 30-yr finished last week at 4.60%, a decline of -2bps, having briefly dipped below 4.60% Thursday. 4.60% does not appear to be a particularly strong technical for the 30-Yr at this stage and it has drifted higher to 4.61%. The driver for long end yields in the first part of the week is most likely to come from any improvements in sentiment as the concerns on US banks dissipates.

   

JGB futures are sharply weaker, -50 compared to settlement levels, and at session lows after digesting the formed coalition between the LDP and Ishin, which should deliver the PM position to LDP leader Takaichi. 

• Takaichi is generally seen as a negative for local bonds (given her pro-growth/monetary loose comments in the past), while being positive for equities.
• Ishin stated: "*YOSHIMURA: DON'T HAVE TIMELINE ON ZERO CONSUMPTION TAX ON FOOD" - BBG, so it may take a little time for fresh policies to emerge.
• BoJ's Takata stated that now is the time to adjust policy rates further, and the inflation target is more or less achieved. Takata voted for a rate hike at the last policy meeting, but this wasn't the majority viewpoint. At this stage, only 6bps of hike risks are priced by the market for the end Oct meeting.
• Cash US tsys are ~1bp cheaper in today's Asia-Pac session after Friday's modest sell-off.
• Consistent with the above developments, cash JGBs are 2-3bps cheaper across benchmarks out to the 10-year but flat to 1bp richer beyond. The benchmark 10-year yield is 3.8bps higher at 1.669% versus the cycle high of 1.70%.
• Swap rates are 1-3bps higher.
• Tomorrow, the local calendar will see Tokyo Condominiums for Sale and Machine Tool Orders data alongside 10-year CT supply.

Oil prices have moved in a narrow range during today’s APAC session with WTI falling 0.4% to $57.30/bbl, below initial support at $57.50, 30 May low, opening $54.89, 5 May low. Brent is down 0.4% to $61.07/bbl holding above round number support at $60.00. Crude found support on Friday from a more positive US-China trade outlook but fundamentals remain poor with supply increasing and demand softening. The USD index is flat. 

• While Q3 China GDP was stronger than expected at 4.8% y/y, it was below the 5% target and Q2’s 5.2%. Also September property and investment data remained weak. Since China is the largest oil importer, the strength of its demand is important especially as the market’s focus is on expected record excess supply in 2026.
• US-China trade negotiations continue this week and Trump’s comments signal that there should be an agreement.
• In terms of geopolitics, attention is on Ukraine again with meetings due to take place including possibly between Trump and Putin. Ukraine hit an important southern Russian gas processing facility on the weekend which resulted in it stopping inbound flows.
• Later the ECB’s Schnabel speaks while the Fed is in its media blackout ahead of the 29 October decision. The ongoing US government shutdown continues to impact public sector data releases. August euro area current account and construction and Canada’s Q3 BoC business survey print.