US TSYS: Yields Higher Post Shutdown End, Awaits Data Release

Like elsewhere, JGB futures have caught a bid as fresh US-China tensions (this time centered on the shipping sector), drive safe haven flows into bonds. The 10yr future was last 136.39, +.49, versus settlement levels. Key short-term resistance has been defined at 137.30, the Sep 8 high, so we are still some distance away but this bounce is challenging the recent bearish break of 136.19, the Sep 4 low. 

• The China announcement targets US shipping entities via Hanwha Ocean, a large South Korean shipbuilder. The authorities also provided details on a broader probe into the impact of the US investigation into China shipping (mkt jitters with be heightened given the potential for escalation from here).
• In the cash JGB yield space, shifts lower have accelerated, led by the 7yr down 5bps. to 1.41%. The 10yr is back to 1.66%, while the 30 and 40yr tenors are holding around 2bps higher.
• The 2/30s curve is maintaining a steepening bias, last +234bps, +5.5bps.
• The other focus point remains domestic politics. "*TAMAKI: WILL HOLD 3-WAY DPP, ISHIN, CDP SEC-GEN MEETING TODAY" (via BBG). There is a possibility of former LDP coalition partner Komeito backing a non-LDP candidate for PM (based off comments yesterday). Tamaki's, the leader of the DPP, PM odds have risen to +17.5, per Polymarket. Note earlier this year Tamaki "urged the BOJ to loosen, not tighten, monetary policy to keep the yen from rising and hurting the export-reliant economy." (via Asahi).
• Note tomorrow has a 20yr debt auction. 

Futures have caught an afternoon bid amid renewed risk aversion centred on US-China tensions. 10yr futures (XM) were last +4bps to 95.73, while 3yr (YM) were at 96.505, +3bps. Upside focus will rest on Sep 12 highs, 95.78 for the 10yr and 96.615 for the 3yr. Broader risk aversion is higher, as China imposed curbs on the US units of Hanwha Ocean, a large South Korean shipbuilder. It also provided details on a broader probe into the impact of the US investigation into China shipping). 

• AUD/USD is the weakest performed in the FX space, and will remain quite sensitive to US-China related developments, particularly from a proxy/risk standpoint.
• ACGB yields are lower across the board, off 2-3.5bps. As we noted yesterday, fresh US-China tensions, with no off ramp, could bring RBA easings back to play if it impacts the global/China growth outlook enough.
• The AU-US 10 spread is off recent highs, last +22bps (from +33bps on Friday).
• Earlier, the September NAB business survey showed the gradual recovery in the Australian economy continued. While, the RBA minutes clearly reflected the Board’s caution at the 30 September decision to keep rates unchanged. Its “decisions”, ie. not just last month’s, “remain cautious and data dependent”. Thus the outcomes of releases between now and 4 November are very important and the tone of the minutes was clear that a rate cut at that meeting is not a given.

NZGB yields have held modestly softer across most of the benchmarks as Tuesday's session unfolded. Outside of a steady 2yr at 2.60%, most other parts of the curve are close to 1bps (although the 10yr is little changed at 4.075%). This comes despite US Tsys resuming cash trading with a firmer bias, this has faded as the session progressed, with fresh China shipping curbs on the US weighing on risk appetite (10yr back under 4.04%). Earlier data showed card transactions falling in Sep, while the RBNZ adjusted loan regulations (essentially easing NZ financial conditions), helping relative NZ yield trends. 

• The NZ-US 10yr rate differential is slightly lower, last at +5bps, up a touch from recent lows sub 0bps. So far in Oct, this spread hasn't been able to sustain +10bps levels.
• New Zealand 2yr swap is near 2.37%, little changed for the session, but still close to recent lows near 2.35% and maintaining a downtrend bias.
• September retail card transactions fell 0.5% m/m after rising 0.6%, the first negative after three consecutive increases. Annual growth slowed to 1.2%. Despite the soft end to Q3, the quarter saw a 0.6% q/q increase in nominal retail spending.
• The Reserve Bank of New Zealand will ease mortgage loan-to-value ratio (LVR) restrictions from Dec 1, increasing the share of new lending allowed at higher LVRs, the central bank said in a statement Tuesday. For owner-occupiers, the limit on loans with an LVR above 80% will rise to 25% from 20%, while for investors, the limit on loans with an LVR above 70% will increase to 10% from 5%.
• Looking ahead, Thursday delivers Sep food prices, ahead of the all important Q3 CPI, out next Monday.