JGBS AUCTION: 30-Year JGB Auction Results

The Japanese Ministry of Finance (MoF) sells Y1,963.5bn 10-Year JGBs:

• Average Yield: 1.140% (prev. 1.084%)
• Average Price: 100.53 (prev. 98.37)
• High Yield: 1.141% (prev. 1.089%)
• Low price: 100.52 (prev. 98.32)
• % Allotted At High Yield: 91.7315% (prev. 20.3093%)
• Bid/Cover: 3.3570x (prev. 3.1156x)

HSBC believes that headline inflation returning to the Bank of Thailand’s (BoT) 1-3% target band is consistent with its view that BoT will keep its policy rate at 2.25% in Q1 2025 “to help keep monetary policy flexible amidst looming trade risks”. With BoT meeting every second month, the February 26 meeting is the only one scheduled for Q1. But there’s a chance of easing in Q2 when HSBC expects “headline inflation to fall back to below the BoT's target band”.

• “We expect inflation to eventually fall to below the BoT's target band in 2Q 2025 and flag the large downside risks to growth if the proposed tariff policies in the US do come into fruition in full. Though our baseline scenario is for the policy rate to remain at 2.25% throughout 2025 to keep household debt at bay, the risks of a policy rate cut from 2Q to 3Q 2025 cannot be ruled out.”
• HSBC observes that the December CPI data was “roughly in line with expectations. Headline inflation is back to within the BoT's 1-3% target band as base effects from energy price controls diminish.”
• This, growth and the increase in the minimum wage should give “the BoT room to keep its monetary stance at a neutral and flexible level” in February.
• “We expect growth in 4Q 2024 to come in at 4.1% y-o-y due to the 1st phase of the Digital Wallet Scheme and strong tourism.”
• “On December 23 (Bangkok Post, 23 December 2024), authorities raised the minimum wages”. “We think cost pressures will likely emerge due to these wage increases.”
• “Import competition, as represented by a continuous fall in Thailand's manufacturing index, continue to provide disinflationary pressures. Furthermore, authorities continue to cap and subsidize the prices of electricity and diesel (Bangkok Post, 1 January 2025).”

At the Tokyo lunch break, JGB futures are holding in negative territory, -4 compared to the settlement levels.

• According to the MNI technicals team, a clear downtrend in JGB futures remains intact and recent fresh cycle lows, reinforce this condition. Note too that moving average studies on the continuation chart are in a bear-mode setup, highlighting a clear downtrend. The move down exposes 141.05, a Fibonacci projection point on the continuation chart. For bulls, a reversal would open 143.39 and 144.48, the Dec 9 and Nov 11 high respectively.
• Cash US tsys are ~2bps richer in today’s Asia-Pac session after yesterday’s modest bear-steepener.
• The cash JGB curve 1-2bps cheaper across benchmarks. The benchmark 10-year yield is 0.2bps higher at 1.138% ahead of today’s supply.
• The relative affordability of 10-year JGBs versus futures—gauged by the 7- to 10-year spread—has declined over the past month, currently sitting near the lower end of its range over the past year.
• Today’s auction also faces challenges from persistently weak sentiment toward global long-end bonds. For instance, the US 10-year yield remains near its highest levels since April, roughly 100bps above its September lows.
• The swaps curve has twist-steepened, pivoting at the 10-year, with rates 1bp lower to 3bps higher.