JGBS: Sharp Bull-Flattening After Solid 30Y Auction Result

JGB futures are stronger, +4 compared to settlement levels, but well off the session’s best level following today’s 10-year auction (see chart).

• The 10-year JGB auction delivered weakish results, with the low price failing to meet expectations at 100.00, according to the Bloomberg dealer poll. Moreover, the cover ratio decreased to 3.3037x from 3.5913x and the tail lengthened to 0.05 from 0.04.
• This performance came despite an outright yield at a fresh cycle high, around 25bps higher than the level of last month's auction. The 2s/10s yield curve had also steepened further since last month’s auction and sat at around the cycle high.
• BOJ Governor Kazuo Ueda’s hawkish comments yesterday may have impacted today's result at the margin.
• In afternoon Tokyo trading, the cash 10-year is dealing ~2bps cheaper than pre-auction levels at 2.126%.
• Cash US tsys are 1-3bps cheaper in today's Asia-Pac session after yesterday's modest gains. Focus remains on US employment data this week: ADP on Wednesday, Nonfarm payrolls for December on Friday.
• Cash JGBs are slightly mixed across benchmarks, with yield changes ranging from +/- 1bp.
• Swap rates are flat to 2bps higher, with a steeper curve.
• Tomorrow, the local calendar will see S&P Global PMIs: Composite & Services.

Source: Bloomberg Finance LP

Precious metals continue to be supported by increased geopolitical risks from the US ousting of Venezuela’s Maduro. However, factors that drove the rally in 2025 are resurfacing including expectations of softer US data and further US monetary easing as well as uncertainty over Fed independence. Jobs data this week will be of particular interest with ADP and JOLTS Wednesday, job cuts Thursday and payrolls Friday. The softer US dollar (BBDXY -0.1%) has also contributed to today’s rally.

• Gold fell to $4427.98/oz early in today’s trading but has recovered to $4465.7 to be up 0.4%. It has been range trading around $4466 remaining below the bull trigger at $4549.9.
• Bloomberg is reporting that the re-weighting of some commodity indices along with 2025’s sharp price rises may see some selling of precious metals.
• Silver is outperforming rising 2.9% today to $78.78/oz, close to the intraday high at $79.094, breaking above initial resistance at $78.684. The bull trigger is at $84.008.
• Equities are mixed with the S&P e-mini 0.1% higher and Hang Seng +1.8% but ASX down 0.4%. Copper is 1.5% higher but iron ore steady around $105.50/t. Oil is down with WTI -0.3% to $58.12/bbl.
• Later the Fed’s Barkin and Miran speak. US final December S&P Global services/composite PMIs print as well as euro area/UK services/composite PMIs and Spanish/German/French preliminary December CPIs.

The first part of Tuesday trade has delivered further BBDXY index weakness, although losses are modest at this stage, less than 0.10%. The index was last near 1202.15/20, still up from late 2025 lows near 1199. Carry over weaker USD sentiment post Monday's ISM miss, coupled with generally positive risk tones, is in play. US Tsy yields have ticked higher so far today but remain within recent ranges (around 1-2bps higher). This is likely driving some wedge between higher beta and safe haven FX. The likes of NZD, AUD are outperforming JPY so far today. Reinforcing these trends is further gains in precious metals led by silver, while copper also continues to rally. 

• AUD/USD is attempting to break above late 2025 highs (0.6728), last 0.6720/25. The generally positive commodity price/equity market backdrop is helping A$ sentiment. We do have an option expiry at 0.6700, which could still also influence spot. Not surprisingly the technical backdrop is positive, The pair has cleared a key resistance at 0.6707, the Sep 17 high. The breach confirms a resumption of the medium-term uptrend that started Apr 9. This signals scope for an extension towards 0.6759 next, the Apr 11 2024 high.
• It is a similar backdrop for NZD/USD, although this pair hasn't been able to meaningful break above 0.5800 (session highs at 0.5806). We have just under $0.80bn in option expires at 0.5800, which could be influencing spot, but broader risk trends still point to a break higher in the pair. The late 2025 high was at 0.5853.
• USD/JPY drifted a little higher in the first part of trade, but at 156.79 ran out of upside momentum. We were last 156.25/30, down slightly on end Monday levels. AUD/JPY is above 105.00 but just short of 2026 highs.
• EUR/USD is edging up, last 1.1730/35, but remains within recent ranges. GBP/USD is up 1.3560/65, fresh highs back to Sep last year and building on Monday's outperformance.
• Looking ahead we have final PMI (services) reads for the UK and EU. Preliminary CPI for Dec also prints for Germany and France. In the US, the final Dec PMI (services) is also out, while the Fed's Barkin and Miran are due to speak.