JAPAN DATA: Surge Into Japan Bonds Cools, Equity Inflows Continue

The latest ACGB May-41 supply auction continued the recent trend of firm pricing, with the weighted average yield printing 0.81bps through prevailing mids (per Yieldbroker).

• Moreover, the cover ratio increased to 4.9500x from 3.2500x at the prior outing. The small number of successful bidders also reflects stronger demand.  
• While today's auction faced a flatter curve than the previous auction, demand was supported by an outright yield at a cycle high, some 40bps higher than the prior outing.  
• In early post-auction trading, the bond line marginally richer

The Feb Westpac Consumer Sentiment Index print fell 2.6% to 90.5 (from 92.9). This puts the index back close to lows from 2025, and comfortably off Nov highs of 103.8. The index spent a lot of late 2022 to late 2024 in a rough 80-85 region, so we remain above these levels. The chart below plots the consumer sentiment reading against the Australian household spending measure, y/y (which came yesterday and moderated to 5%y/y). The m/m correlation between the two series' is soft but the general trends can follow each other. Spending started to improve as sentiment lifted late in 2024 from very depressed levels. The move off recent highs for sentiment points to some downside risks in household spending, but arguably the RBA needs this to aid the return of inflation to target.

• Westpac notes in terms of today's result: "Muted response compared to previous rate hikes. Current conditions and medium term outlook weaken; year-ahead views stable. Over 80% expect interest rates to rise further in the next 12 months."
• It adds:  "The RBA has already signalled that the volatility of the new monthly CPI means it will continue to focus more closely on the quarterly price data, particularly for trimmed mean inflation. With the next quarterly update due in late April likely to show inflation still uncomfortably high, this points to the next 25bp rate hike coming in May."

Fig 1: Westpac Consumer Sentiment Index & Household Spending Y/Y  

Source: Westpac/Bloomberg Finance L.P./MNI 

The AOFM sells A$300mn of the 2.75% 21 May 2041 bond, #TB156:

• Average Yield (%): 5.0717 (prev. 4.7052)
• High Yield (%): 5.0725 (prev. 4.7075)
• Bid/Cover: 4.9500x (prev. 3.2500x)
• Allotted at Highest Accepted Yld as % of Bid at that Yld (%): 100 (prev. 63.6)
• Bidders: 39 (prev. 38), successful 4 (prev. 14), allocated in full 4 (prev. 8)