US TSYS: Pressured In Recent Dealing

JGB futures are holding at the overnight session’s closing level, +8 compared to settlement levels, after trading in a narrow range in early Tokyo trade.

• With the local calendar light today, local participants will be on headlines watch and monitoring US tsys after the US cash curve twist flattened on Tuesday. Cash tsys are 0.1 to 1.7bp cheaper in early Asia-Pac trade.
• Inflation expectations should be around 2% once the central bank’s 2% price target is met, BoJ Governor Ueda says in parliament yesterday. The BOJ has consistently stated that it will maintain its easing program until its price goal is achieved in a stable manner, Ueda says in response to questions. (link ICYMI)
• According to a Bloomberg article, the spread between the June contract for 10-year bond futures and the cheapest-to-deliver securities shrank this month to the lowest level since the contracts began trading in September. The smaller gap indicates there’s now enough liquidity for traders to arbitrage between bonds and futures. (link)
• BoJ Governor Ueda is scheduled to appear in parliament from 0530 BST / 1330 JST.
• The cash JGB curve twist flattened in morning Tokyo trade, pivoting at the 3-year zone. The benchmark 10-year yield is 0.4bp lower at 0.422%.
• Swaps curve bear steepens with swap spreads are wider apart from the 10-year zone.

The Australian Office of Financial Management (AOFM) will today sell A$700mn of the 3.75% 21 May 2034 Bond, issue #TB167. The line was last sold on 29 March 2023 for A$800bn. The sale drew an average yield of 3.3864%, at a high yield of 3.3900% and was covered 3.7812x. There were 52 bidders, 16 of which were successful and 11 were allocated in full. Amount allotted at the highest yield as a percentage of amount bid at that yield was 38.8%.

• This week's ACGB supply continues the trend of relatively low issuance, aligning with AOFM Issuance Update.
• Today’s auction occurs in the shadow of yesterday’s surprise 25bp hike from the RBA. According to the statement, the decision was made to address high inflation, which, although it has peaked, remains at 7%, necessitating further measures to ensure its return to the target range. These points were reiterated in RBA Governor Lowe’s speech this morning.
• The late March auction took place when concerns regarding the global banking sector had started to moderate. Still, there was a strong element of two-way risk to prices, given the elevated levels of inflation and repricing of the RBA’s monetary policy path.
• Alongside the RBA policy uncertainty, the flattening of the yield curve may potentially constrain the overall strength of bidding at today's auction. The 3/10 cash curve reached a new cycle low yesterday, marking the flattest level since 2010.
• Nevertheless, due to a significantly higher outright yield compared to the previous offering, a low level of issuance, and the inclusion of the line in the XMM3 basket, which enhances hedging opportunities, we anticipate at least decent demand.
• Results are due at 0100BST/1100AEDT.