JGBS: Yield Curve Breaking Flatter As Fiscal Concerns Fade
JGB futures are stronger, +20 compared to settlement levels, but at session lows.
- The Japan Jan PPI was in line with market forecasts.
- Cash US tsys are slightly richer in today's Asia-Pac session after yesterday's post-payrolls sell-off.
- Cash JGBs have bull-flattened, with yields 1-9bps lower across benchmarks.
- After reaching a record steepness in mid-January, the 2/40 yield curve is now testing the lower bound of the well-defined range that has contained price action since mid-year.
- Since late last year, steepening has been most pronounced in the 2/5 segment, leaving the 5-year sector relatively unattractive on the curve. Into the recent election, expectations of fiscal expansion under a Takaichi administration implied heavier debt supply, reinforcing pressure on intermediates.
- In recent days, however, those fiscal concerns appear to have moderated following Prime Minister Sanae Takaichi's historic election victory.
- Notably, while the 2/5 segment has flattened, it is the 5/40 curve which has broken through the bottom of the range it has traded in since June last year.
- Swap rates are flat to 5bps lower, with a flatter curve.
- Tomorrow, the local calendar will see Weekly International Investment Flow data alongside an Auction for Enhanced-Liquidity 5-15.5 YR and BOJ Board Member Tamura Speech in Kanagawa.
Source: Bloomberg Finance LP
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CHINA: 10-Yr Bond Future Near Key Tech Level, NDIRS Steady (amended)
- China bond futures are higher today, following the first significant liquidity injection of the year via the OMO.
- The 10-Yr is up +.04 at 107.83 having spoked to 107.87 earlier and the 2-Yr is flat at 102.32.
- The move higher in the 10-Yr sees it near to its topside resistance from the 20-day EMA at 107.89.
- Cash is slow today with the 2-Yr at 1.43% and the CGB 10-Yr down modestly in yields at 1.85%
- 2-year NDF are flat at 1.50 and 10-Yr flat at 1.74%
- The next key event for markets will be the trade data for December out tomorrow.
CHINA: 10-Yr Bond Future Near Key Tech Level, NDIRS Steady
- China bond futures are higher today, following the first significant liquidity injection of the year via the OMO.
- The 10-Yr is up +.04 at 107.83 having spoked to 107.87 earlier and the 2-Yr is flat at 102.32.
- The move higher in the 10-Yr sees it near to its topside resistance from the 20-day EMA at 107.89.
- Cash is slow today with the 2-Yr at 1.43% and the CGB 10-Yr down modestly in yields at 1.85%
- 2-year NDF are flat at 1.50 and 10-Yr flat at 1.74%
- The next key event for markets will be the trade data for December out tomorrow, and
JPY: USD/JPY - Dips Heavily Supported, Gaining Momentum Higher As MOF Jaw-Bones
The USD/JPY range today has been 157.90 - 158.86 in the Asia-Pac session, it is currently trading around {USDJPY Curncy}. USD/JPY dipped early in our session on some official jaw-boning but once again the market uses every dip to buy. The BOJ is in a tough spot, and they are going to need to do something significant to turn around the market's perception of a weak Yen. A test of the BOJ/MOF resolve looks inevitable at the moment as the market moves its focus back toward the important 160.00 area. In today's session, look for dips back toward 157.50 to remain supported as the market picks up momentum higher, it feels the market is almost baiting the MOF/BOJ to get involved. I suspect we will get more official jaw-boning as we approach 160 and any move above there would then dramatically increase the chances of them getting involved. US yields are also approaching some pivotal levels and this could also provide further headwinds for the Yen should the US 10-year yields break higher, see graph below.
- "PM TAKAICHI CONVEYS INTENT TO DISSOLVE THE HOUSE OF REPS, TELLS INTENSION TO CALL SNAP ELECTION: KYODO" - BBG
- “OZAKI: SEEING RAPID, ONE-SIDED MOVES IN FX MARKET, TO TAKE APPROPRIATE ACTION AGAINST EXCESSIVE FX MOVES" - BBG
- "JAPAN'S KATAYAMA: HELD BILATERAL TALKS WITH BESSENT, “TOLD BESSENT I'M CONCERNED ABOUT ONE-WAY YEN MOVES, BESSENT SHARES SAME VIEWS REGARDING WEAK YEN" - BBG
- Options : Close significant option expiries for NY cut, based on DTCC data: 157.00($535m), 157.50($537m), 158.50($647m). Upcoming Close Strikes : 158.00($1.84b Jan 16), 160.00($3.74b Jan 16) - BBG.
- The USD/JPY Average True Range(ATR) for the last 10 Trading days: 80 Points
Fig 1 : US 10-Year Yield Daily Chart
Source: MNI - Market News/Bloomberg Finance L.P
