JGBS: Slightly Mixed After Domestic Data Drop

*JAPAN 2Y GOVT BOND AUCTION MAY HAVE 100.055 LOWEST PRICE: POLL – BLOOMBERG

ACGBs (YM +9.0 & XM +10.0) are stronger but off session bests, aligning with a slight paring of early gains for US tsys in today’s Asia-Pac session. Currently, cash US tsys are 3-5bps richer after Friday’s strong risk-off-induced rally. 

• Private sector credit rose 0.5% from a month earlier in February.
• The Melbourne Institute inflation index rose 0.7% m/m in March versus -0.2% in February.
• The latest round of ACGB May-28 supply saw the weighted average yield print 1.15bps through prevailing mids (per Yieldbroker), extending the recent trend of firm pricing at ACGB auctions. Moreover, the cover ratio jumped to a robust 4.4250x.
• The outright yield was 15-20bps higher than the previous outing. The bid appeared strengthened by market expectations for RBA easing in 2025 which have become more aggressive ahead of tomorrow’s RBA Policy Decision.
• While a 25bp rate cut tomorrow is given only a 5% probability, a cumulative 70bps of easing is priced by year-end. The market’s reluctance to price in a cut for tomorrow reflects the RBA’s cautiousness surrounding February's easing.
• Cash ACGBs are 8-10bps richer with the AU-US 10-year yield differential at +15bps.
• Swap rates are 7-9bps lower, after being 10-11bps lower early.
• The bills strip has bull-flattened, with pricing +4 to +9.

** corrected CFTC update in the final paragraph. 

After moving lower on Friday night to close around 4.25% 10 Yr US yields have moved again gapping lower this morning as risk starts the week squarely on the backfoot. We were last near 4.21% (down around 4bps). USD/JPY has followed suit, after touching 149.84 early doors it has quickly come back under selling pressure printing under 149.00 in latest dealings. 

• The market might have been hoping for some USD demand into the Japanese fix to sell at better levels but once yields started collapsing the sellers were forced to engage. Technically the pair has failed once more around 151.00 and the bears once more have gained the upper hand.
• On the day any bounces back towards 149.80/150.20 should see sellers reemerge, early morning Monday price gaps in Asia have an ugly habit of being unwound as the day evolves but if risk remains under pressure so too shall USD/JPY.
• While USD/JPY continues to be capped around 151.00/50 it will remain a sell on rallies, a break below the 146.50 area would see the move lower gain momentum. We were last near 148.80/85, with broader risk trends dominating sentiment.
• Also note, Japan’s Government Pension Investment Fund will announce its asset allocation for the next five years later today which could have important implications for the market (see this BBG link).
• CFTC weekly data shows leverage funds slightly reduced shorts and Asset managers continue to rebuild JPY longs.

Fig 1: USD/JPY CFTC Positioning Data

Source: MNI - Market News/Bloomberg