CROSS ASSET: Sharp Silver Drops Drives Cross Asset Risk Aversion, USD Higher

The Japanese Ministry of Finance (MoF) will today sell Y2.6tn of 10-year JGBs. The MoF last sold 10-year debt on 2 December 2025. This month's auction offers an outright yield hovering around its cycle high, around 25bps higher than the level of last month's auction.

• The 2s/10s yield curve has steepened further since last month’s auction and is now at a cycle high, while the 7s/10s curve is little changed.
• Sentiment toward longer-dated bonds remains under pressure amid ongoing fiscal concerns.
• BoJ Governor Ueda reiterated the central bank’s tightening bias yesterday. However, OIS pricing remains relatively flat over the next two policy meetings. BOJ-dated OIS does not fully price a 25bp hike until July 2026.
• Against this backdrop, it remains to be seen whether the current 10-year yield level will be sufficient to maintain strong demand in today's auction.
• Results are due at 0335 GMT / 1235 JT.

The Japanese Ministry of Finance (MoF) will today sell Y2.6tn of 10-year JGBs. The MoF last sold 10-year debt on 2 December 2025. The auction drew cover of 3.5913x at an average yield of 1.872%, an average price of 98.57, a high yield of 1.877%, a low price of 98.53, with 21.1502% of bids allotted at the high yield.

• Last month, the 10-year auction saw stronger demand than its 12-month average. The bid-to-cover ratio was stronger vs 2.97x at the prior auction, with a tail of 0.04 vs 0.13 for prior sale. Cut-off price was 98.53 vs 98.50 in a Bloomberg survey.
• Results are due at 0335 GMT / 1235 JT.

AUDUSD trended towards 0.6700 earlier in the APAC session but has rebounded off the low of 0.6703 to be little changed at 0.6715 supported by stronger Hong Kong & US equities and a turn lower in the greenback. Base metals are also higher. 

• AUDUSD is also likely getting direction from a $1.19bn option expiry today with strike at 0.6700. The pair has faced upward and downward pressure to this level this week.
• After trading above 1.1600 early in the session, AUDNZD is now down 0.1% to 1.1589.
• AUDJPY reached 105.256 but is now around 105.07 to be up 0.1% today. AUDEUR is little changed at 0.5729 after falling to 0.5723, while AUDGBP is around 0.4959.
• Equities are mixed with the S&P e-mini 0.1% higher and Hang Seng +1.0% but KOSPI down 0.3% and ASX -0.3%. Copper is 1.0% higher but iron ore steady around $105.50/t. Oil is down with WTI -0.6% to $58.00/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 focus on Wednesday will be November Australian CPI with the trimmed mean forecast to moderate 0.1pp to 3.2%. Higher-than-expected outcomes could see Aussie strengthen.