JGBS AUCTION: PREVIEW - 40-Year JGB Auction Due

• China’s bond futures were up modestly on Monday as equities were marginally down.
• The 10Yr bond future is up +0.09 to 108.895; moving above the 20-day EMA of 108.70.
• The 2Yr bond future is up +0.02 to 102.33 and remains firmly below all major moving averages, the nearest being the 20-day EMA of 102.44.
• Despite this morning’s move, all major moving averages for the 2Yr are pointing downwards, a sign that the bearish momentum remains in place.
• China’s bond market has come off the back of a very quiet week last week, with limited movement and the CGB 10Yr is -1bp lower in this morning's trading at 1.65%
• The week ahead the focus is on the PMI’s tomorrow. 

ACGBs (YM +3.0 & XM +5.5) are richer and at Sydney session highs on a data-light day.

• Cash US tsys are slightly mixed, with a flattening bias, in today’s Asia-Pac session after Friday’s solid.
• “The Australian economy will expand 1.9% in 2025, 2.3% in 2026 and 2.5% in 2027, according to a survey conducted by Bloomberg News. The chance of a recession happening over the next 12 months is 15 percent, according to 14 respondents. 2025 CPI forecast at +2.5% y/y versus prior survey +2.6%. RBA Central Bank Rate seen at 3.85% by end-2Q25, current rate is 4.10%.”
• Cash ACGBs are 4-7bps richer with the AU-US 10-year yield differential at -7bps.
• Swap rates are 6-8bps lower, with the 3s10s curve flatter.
• The bills strip has bull-flattened, with pricing -2 to +3.
• RBA-dated OIS pricing is flat to 6bps softer across meetings today. A 50bp rate cut in May is given a 12% probability, with a cumulative 118bps of easing priced by year-end (based on an effective cash rate of 4.09%).
• The AOFM plans to sell A$1200mn of the 2.75% 21 June 2035 bond on Friday.

The polls in the second half of April have been fairly steady with the average 2-party preferred estimated at 52.5% to 47.5% where it has been through the election campaign and close to the May 2022 result. If the surveys have accurately gauged voting intentions, then the incumbent centre-left Labor government (ALP) may retain a small majority but given that there is unlikely to be a uniform swing given the strength of local issues this time, it could easily find itself with a minority. 

• Opinion poll results in the second half of April range from 50:50 (Freshwater) to 56:50 in favour of the ALP (Roy Morgan). A poll hasn’t shown the centre-right opposition LNP in front since late March (Freshwater).
• In terms of the primary vote, the average is showing the LNP on around 35% (+1pp from first half of April), ALP 34% (+2pp), Greens steady on 13%, One Nation 8% (+1pp) and others (includes green Teals) 12% (-1pp). Given standard errors around polling, these results are in line with the 2022 results.
• The Australian’s Newspoll shows that PM Albanese remains the preferred PM with 51% support with the opposition leader Dutton on 35%. Voters are net unsatisfied with both leaders with Albanese steady on -9% but Dutton down 2pp to -24%. Despite these results, only 39% of respondents believe that the government deserves to be returned but this is up 5pp on February. However, 62% think that the opposition LNP is not “ready to govern” up 7pp.
• Given that the ALP looks likely to retain government, it is worth noting that S&P warned that Australia’s AAA credit rating is threatened by the government’s large increase in off balance sheet spending. The Australian observes that it plans to increase this type of expenditure by close to $85bn over the coming 4 years.