CHINA PRESS: PBOC Bond Trading To Stabilise Expectations

In a quiet week RBA Governor Bullock’s appearance before the Senate Economics Committee on Friday and Westpac October consumer confidence on Tuesday will be the highlights.

• RBA Governor Bullock and Assistant Governor Kent will answer questions from the Senate Economics Committee for the supplementary 2025-2026 budget at 0900 AEDT on Friday. Bullock appeared before the lower house before the 30 September decision to hold rates and so the decision as well as its inflation concerns are likely to be examined.
• Tuesday’s October Westpac consumer sentiment survey would have been taken during the week of the 30 September RBA decision and given rates were unchanged, the pre- and post-meeting breakdown will be of interest. Confidence fell 3.1% to 95.4 in September as economic and unemployment expectations deteriorated.
• ANZ September job ads also print on Tuesday. The series appears to have stabilised with it rising 1.75% y/y in August, the fastest since January 2023.
• Melbourne Institute inflation expectations for October are released on Thursday. Q3 was in line with Q2 at 4.4%. Any breaks below 4% have been short-lived. On Monday, MI’s September inflation gauge for both headline and trimmed mean rose 0.2pp, another sign of stalling disinflation. 

 In the options space, per DTCC (via BBG), USD/JPY is dominating early Monday volumes, at 78.6% of total traded (near$1.97bn). In terms of some of the larger volume transactions, we have seen $100mn USD/JPY calls going through at strikes ranging from 151-155. Expiries for the 155.00 strikes are in early 2026. JPY futures are elevated, last around +62.8k, against open interest of 295.8k (per BBG for JYZ5). We have been elevated for much of the morning trade period, as USD/JPY spiked higher at the open and remains supported on dips (eyeing a 150.00 test). We remain within historical norms though from an aggregate volume standpoint. 

• USD/JPY implied 1 month vols are higher at 9.40% for the 1 month, but still closer to the bottom end of the 2025 range. The 1 month risk reversal is at fresh highs back to 2022, last around -0.35. 

US Tsys futures are maintaining a negative bias since the open, although fresh weakness after the gap lower at the open has been modest. Spillover to the cash Tsy space is evident from the steepening bias seen in cash JGBs. The US 2/10s was last +56bps, back around Oct highs (Sep highs were +62bps). More broadly for the outright 10yr, last at 4.14%, +2bps, we remain wedged within recent 4.10-4.20% ranges. Market sentiment is somewhat mixed, with limited official data out due to the government shutdown (thereby limiting assessment on economic trends) potentially impacting sentiment. 10yr futures (TY) were last 112-17, -04+, leaving the 50-day EMA support point at 112-12+ intact.