JGBS: Sharply Richer AS Israel Strikes Iran

Japan's April PPI was close to market expectations. The print was 0.2%m/m (forecasts were 0.2%, while prior was 0.4%). In y/y terms we rose 4.0%, in line with market forecasts but down from a revised 4.3% gain in March. 

• At face value, this doesn't change the broader headline CPI backdrop. The chart below plots the headline PPI measure against headline CPI, both in y/y terms. Still elevated, but slightly off recent highs.
• In terms of the detail, the manufacturing PPI was down -0.2%m/m, while some commodity related m/m down, particularly for metals. Some offset came from agriculture, up 3.4%, while utilities were also higher.
• Import prices were down 2.9%ym/m in JPY terms for all commodities. In y/y terms this is -7.2%.

Fig 1: Japan PPI Versus CPI - Y/Y

Source: MNI - Market News/Bloomberg 

Bidding at today's A$1200mn of the 3.50% 21 December 2034 bond, issue #TB168, is likely to be shaped by several key factors:

• The current outright yield is approximately 15bps higher than at the previous auction, though still 25bps below the late-2024 peak. The line was last issued on 16 April 2025 for A$1000mn.
• The 3s/10s yield curve has flattened by around 10bps since the last auction and currently sits 25bps below its April peak — the steepest level since late 2021.
• The auction comes amid weaker sentiment toward longer-dated global bonds, driven by positive trade developments, resilient U.S. data, and further delays in Fed rate cut expectations.
• The bond is included in the XM basket, enhancing its relevance for benchmark-driven accounts.
• While some macro factors may temper demand, pricing is expected to remain firm at today’s auction.
• Results are due at 0200 BST / 1100AEST.

The ESM5 Overnight range was 5837.50 - 5927.00, Asia is currently trading around 5907. This morning risk is opening up relatively flat in Asia after US stocks extended their gains overnight. Expect some intra-day retracement but the broader risk-on move might still have a couple of days to play out as the price action shows the market was not expecting such a positive outcome so quickly and has been caught wrong-footed.

• Momentum Fund orders continue to be triggered and this looks to be causing some pain to a market that has been positioned generally underweight. 
• (Bloomberg) -- “Most global investors have been underweight US equities, missing the stock market rebound of the past month, and could now be forced to chase the rally following positive developments in US-China trade talks, according to the Bank of America global fund manager survey.”
• “Survey shows cash levels were cut to 4.5% from 4.8% last month, while investors are most underweight US dollar since May 2006, and trim bond overweight to neutral.”
• The SPX has had a huge bounce from its lows on a 4800 handle, there has been no pause and this has left a generally bearish market completely wrong-footed. There are still very good fundamental reasons to be underweight stocks but when price moves higher like this portfolio managers are forced to react and the focus now returns to the highs. 

• This move could still have more to go as the conviction of the bears is challenged but look for sellers to return back above 6000 again as the concerns regarding Global growth and the re-allocation out of US Assets have not gone away.

  Fig 1: SPX Daily Chart

  

  Source: MNI - Market News/Bloomberg