US TSYS: UST Yields Modestly Higher on the Week
US bond futures were flat to modestly down in the Asia trading day, failing to take the overnight lead. Stuck below a key technical, the 10-Yr TYZ5 if flat on the day at 112-24+ having traded below the 50-day EMA of 112-26+ overnight.
Cash was better bid, having tried to move higher throughout the morning. All maturities out to 10-Yr are down -0.4 - 0.8bps whilst longer bonds are still suffering from the overnight weak 30-Yr auction.
- The 2-Yr is at 3.58% (+2bps for the week)
- The 5-Yr is at 3.70% (+2bps for the week)
- The 10-Yr is at 4.10% (+1bps for the week)
- The 30-Yr is at 4.71% (+1bps for the week)
A story in the New York Time suggests that President Trump is preparing tax exemptions in a bid to lower food prices, which have been a cause of anxiety for consumers. If successful, this could lower inflation, and bring rate cuts in 2026 back on the agenda.
We saw a sizeable block curve steepener going through in Asia trading: BUY 8600 of TUZ5 traded at 104-04 1/4, post-time 13:10:10 AEST (DV01 $320,084). The contract is currently trading at 104-04 3/8, unchanged from closing levels. SELL 3600 of UXYZ5 traded at 115-13+, post-time 13:10:10 AEST (DV01 $322,756). The contract is currently trading at 115-14+, -0-02 from closing levels.
There are no major auctions in the calendar tonight and data releases remain uncertain. Key will be whether investors follow on from last night's lead.
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FOREX: A$ & Yen Outperform, RBA’s Bullock Speaks In US Later
The USD is weaker with the BBDXY off 0.20% to the low 1212 region. Broader ranges are holding, but focus will be on if the 10yr Tsy yield can test and break under 4.00%. JPY and AUD are the outperformers today, aided by the stronger CNY fixing (under 7.1000 for the first time this year), as well as the softer US yield backdrop.
- USDJPY got close to 151.00, so under Friday’s risk off lows, but has stabilized back to 151.20/25 in latest dealings. As we noted earlier USDJPY looks too high relative to yield momentum between US-JP. AUDJPY has range traded and is currently around 98.51.
- AUDUSD is trading back above 0.6500 again boosted by better risk appetite with regional equities rallying and is up 0.4% to 0.6514, close to the 0.6518 intraday high. The pair looked through the slightly softer-than-expected September China CPI outcome. RBA Assistant Governor Hunter’s comments were consistent with the September minutes.
- NZDUSD is up only 0.1% to 0.5719 today due to indications of further RBNZ easing from its chief economist Conway. The difference in tone between the two central banks drove AUDNZD up 0.4% to 1.1387 after a 1.1392 peak.
- The USDCNY fix under 7.1000 has been another positive, while other cross asset trends have been mixed.
- Later RBA Governor Bullock participates in a fireside chat at the Nomura Research Forum in Washington DC at 1545 EDT/0645 AEDT.
- The Fed’s Miran, Waller and Schmid speak on Wednesday and the Beige book is released. The ECB’s de Guindos, Buch and Donnery, and BoE’s Breeden and Ramsden also appear. US October Empire manufacturing and August euro area IP print.
JGBS: Futures Lagging Tsys, 20yr Debt Auction Digested Smoothly, BoJ Speech Thur
Futures sit at 136.29, -0.4 versus settlement levels, little changed in the post lunch break period at this stage. We remain close to recent highs, with US Tsy futures trading with a positive bias (all eyes on the 10yr yield and whether we can break under 4.00%), imparting some positive spillover (although JGBs are lagging). The 20yr auction was digested relatively smoothly by the market. Domestic political uncertainty continues, with lack of agreement on holding the PM election on Oct 21, although this isn't weighing on JGB sentiment at this stage.
- The current rally in futures comes in the context of the firm downtrend that’s dominated prices since mid-September. Key short-term resistance has been defined at 137.30, the Sep 8 high. The latest sell-off, however, resulted in a break of support at 136.19, the Sep 4 low and a bear trigger.
- We would expect JGB futures to lag US moves. The US-JP 10yr government bond yield spread is down a further 2bps today to +235bps, close to recent lows.
- The outright 10yr JGB yield is little changed at 1.66%, while the 20 and 40yr tenors are off 2bps, the 30yr off 3.5%. The 20yr yield is just under 2.70%. The auction saw a bid to cover ratio of 3.56 versus a 12 month average of 3.25.
- Political uncertainty continues around who will be the new PM, with headlines crossing a short while ago that the parliamentary committee has failed to agree to hold the new PM election on Oct 21 (which was speculated on yesterday). Meetings between the LDP and minor parties are continuing today.
- Looking ahead, Aug core machine orders print tomorrow. Note we also hear from BoJ Board member Tamura.
US TSYS: 10-Yr Close to Trend Lows - Looks for Possible Break Overnight
TYZ5 traded up during the trading day in Asia reaching a high of 113-15+ from the open of 113-11 unable to provide meaningful follow on from the overnight rally in the US.
- The US 2-Yr is at 3.468%, down -1.5bps today.
- The US 5-Yr is at 3.592% having closed prior to Columbus day at 3.626% and down -1.5bps today.
- The US 10-Yr is down -2.3bps to 4.011% having failed to test 4.00% prior. It had looked likely to remain in the 4.00% - 4.20% range for now, seeking a fresh catalyst to break out and will be watched closely overnight to see if it can break below and hold sub 4.00%.
- The US 30-Yr is down -2.3bps at 4.611%
- The Fed Chairman Powell's comments continued to echo through markets today with him indicating that the outlook for inflation and employment appears to have changed little since September, keeping intact expectations for two more rate cuts this year.
- Key data in the calendar for later is Empire Manufacturing which is forecast to decline -1.8 following -8.7 in September and Real Average Hourly Earnings.
