AUSSIE BONDS: Trading At Cheaps With The Curve Twist-Flattening

The Japanese Ministry of Finance (MoF) will today sell Y2.4tn of 5-Year JGBs. MoF last sold 5-year debt on 8 July 2025.

• Yields on today’s offering are 5-10bps higher than last month’s issuance levels but remain 5-10bps below the cycle peak.
• The 2s/5s yield curve is 5bps steeper than last month and sits just below its cycle peak.
• Amid mixed to weak demand at recent auctions, today’s results will be closely watched for signs of continued softness.
• Results are due at 0435 BST / 1235 JST.

With May and June employment gains disappointing, the July data will be monitored closely for signs that the labour market has turned. Q2 employment averaged 28.8k/month up from Q1’s 1.4k but slightly lower than Q2 2024’s 32.2k. Bloomberg consensus expects a 25k gain in July after June’s +2k, slightly below the Q2 average. The unemployment rate is forecast to decline 0.1pp to 4.2%, returning to the Q2 average. 

• In its updated staff projections on Tuesday, the RBA continued to expect the Q4 2025 unemployment rate to be 4.3% and then stay there. Employment growth was revised up to 1.6% from 1.4% in Q4 2025 and it then slows to 1.4% and remains there over the rest of the forecast horizon.
• The employment component of the NAB business survey is signalling that labour demand growth is slowing and so we may see average job prints trending lower over coming months.
• Analysts’ projections for job gains in July range from +12k to +50k with most between +15k and +35k. The large local banks are clustered around consensus with ANZ and Westpac in line, but CBA and NAB slightly lower at 20k and 23k respectively.
• Unemployment rate expectations are between 4.2% and 4.4% with NAB and Westpac forecasting it to drop 0.1pp to 4.2%, but ANZ and CBA expecting it to stay at 4.3%.
• The participation rate is projected to be steady at 67.1%.

Australia NAB business survey employment vs employment y/y%

The Japanese Ministry of Finance (MoF) will today sell Y2.4tn of 5-Year JGBs. The MoF last sold 5-year debt on 8 July 2025, with the auction drawing cover of 3.5411x at an average yield of 0.989%, an average price of 100.05, a high yield of 0.993%, a low price of 100.03, with 6.9288% of bids allotted at the high yield.

• Last month’s 5-year bond auction demonstrated showed mixed signals on demand. The low price came in line with expectations at 100.03, but the bid-to-cover ratio declined to 3.5411x from 4.5783x—albeit the highest since 2023. Meanwhile the tail narrowed slightly to 0.02 from 0.05, pointing to improved bidding interest.
• Today’s auction also after this month’s 10-year bond auction delivered weak results, with the low price failing to meet expectations at 100.21, according to the Bloomberg dealer poll. Moreover, the cover ratio decreased to 3.0592x from 3.5070x, and the tail lengthened to 0.14 from 0.03.
• Results are due at 0435 BST / 1235 JST.