USDJPY TECHS: Sharp Reversal Extends

White House set to extend Jones Act waiver as Trump hunts for cheaper gasoline (EXCLUSIVE) - [RTRS]

Analysts expect Treasury to increase the size of nominal coupon auctions in 2027, sometime between the February and November refundings with a median expectation of May 2027. Most analysts expect Guidance to remain unchanged at this meeting but there are a few that see changes, including BofA, CIBC, Deutsche, and Morgan Stanley. In order of nearest-to-furthest-away expectations for the next nominal coupon upsizing: 

BofA: Issuance Guidance: “August refunding is critical to our base case of 2-7Y coupon growth in Feb '27. We have said coupon growth risks skew to later than Feb; if "several quarters" language is retained it seems likely to push next coupon increase to May or August '27.”

• Duration Strategy: “UST guidance limited & WAM falling with higher bills. Bessent willing to stay course until bill demand falters or long end UST supply / demand improves. It may take lower rates or new long end demand via reg changes to shift WAM trend.”
• Next nominal coupon auction size change: Feb 2027

Deutsche: “For the August QRA, we think risks are skewed toward higher yields and tighter swap spreads, reflecting the likelihood that Treasury begins adjusting its forward guidance on coupon issuance. In four of the last five QRAs, Treasury yields rose and swap spreads tightened, which we believe reflected the unwinding of investor expectations for a more market-friendly outcome. While the May QRA bucked this trend, we would be cautious about a reversion to history next week.”

• Issuance guidance: “We expect Treasury to modestly soften its forward guidance on coupon auction sizes at the August refunding, paving the way for coupon increases beginning in February 2027. Potential changes could include dropping "at least" from the current guidance or replacing the calendar based commitment with more flexible language.”
• Treasury could also pair the sentence “… Treasury believes its current auction sizes leave it well positioned to address potential changes to the fiscal outlook …” with the statement: “However, based on projected intermediate- to long-term borrowing needs, Treasury may need to increase auction sizes at a future date.” This approach would closely resemble the language used in the May 2023 QRA, the quarter preceding the most recent round of coupon auction size increases.”
• Fiscal Outlook: “Fiscal policy risks appear skewed toward wider deficits given the ongoing conflict with Iran… Additional upside risks to borrowing needs include potential legal challenges to Section 301 tariffs…as well as higher interest rates that would raise Treasury’s net interest expense…we have revised our deficit projections higher by roughly $400bn over FY2026-FY2028. We now forecast deficits of $2.04tn in FY2026 (-$53bn versus our prior estimate), $2.41tn in FY2027 (+$270bn), and $2.43tn in FY2028 (+$175bn).”
• Next nominal coupon auction size change: Feb 2027

Morgan Stanley: "the recent Treasury market sell-off skews risks to Treasury signaling coupons sizes being held constant longer than our baseline view. Options to address the sell-off include revised forward guidance, explicit reference that the bill share is not binding, and expanded long-end buybacks."

• Issuance guidance:  tweaked to: "Treasury anticipates maintaining nominal coupon and FRN auction sizes for the upcoming quarters."
• Duration Strategy: "smaller increases, spread out over a longer period concentrated to tenors 7 years and in. This gradual path of issuance, skewed to tenors on the curve, with more relative demand should help minimize growing investor sensitivity to higher yields."
• Next nominal coupon auction size change: Feb 2027

• Crude has fallen today amid various signs of progress towards a deal that could see the Strait of Hormuz reopen. The move down gained momentum after Bloomberg reported that Iran is considering allowing European nations to remove mines from the Strait of Hormuz.
• This would represent a potential climbdown by Iran that could form part of a deal to normalise shipping in the waterway, Bloomberg says. Iran has previously said it would not allow foreign countries to join de-mining efforts.
• WTI Sep 26 is down by 5.7% at $75.7/bbl.
• US Treasury Secretary Bessent said that there may be an Iran deal tomorrow to open Hormuz, while a source told Al Arabiya a deal could come within hours, or tomorrow.
• Officials familiar with the accord said vessels heading into the Gulf will transit a channel controlled by Iran, and close to its coast. Ships leaving will travel on a channel near Oman. Iranian officials say no tolls will be charged but the agreement includes a “service fee,” with revenues split equally between Iran and Oman.
• Today’s move lower has seen price pierce initial key pivot support at $80.05, the 50-day EMA, narrowing the gap to next support at $73.35, a Fibonacci retracement.
• Elsewhere, precious metals have risen amid the improvement in risk sentiment, with spot gold up by 0.8% at $4,088/oz.
• For gold, firm resistance is at the 50-day EMA, at $4,184.6, a clear break of which is required to signal a possible short-term reversal.