JAPAN: BoJ Balance Sheet Declining, Potential Implications For Global Markets

TYH5 is +0-05 firmer at 109-04 after Monday’s solid gains. 

• There has been no cash dealing in US tsys today with Japan out for a bank holiday. Today’s US data (prior, est) includes FHFA House Price Index MoM (0.7%, 0.4%) and S&P CoreLogic CS 20-City MoM SA (0.18%, 0.20%) at 0900ET, Dallas Fed Services Activity (9.8, --) at 1030ET.
• Reminder for Tuesday's session: Rate futures have a full session (1600ET close) while cash Tsys close at 1400ET.
• While the NYSE Group markets will close on January 9 in observance of the National Day of Mourning for President Carter (New York Stock Exchange, NYSE American Equities, NYSE American Options, NYSE Arca Equities, NYSE Arca Options, NYSE Chicago and NYSE National), the CME Group has opted for early close, link HERE
• FI open outcry will close at 1300ET, and GLOBEX after at 1315ET.
• More to follow, but economic data expected that day is likely to proceed as normal (weekly jobless claims at 0930ET, Wholesale trade & inventories at 1000ET).
• Treasury auctions scheduled for January 9 remain uncertain (4- & 8W bills at 1130ET, 30Y bond re-open at 1300ET).

ACGBs (YM +8.0 & XM +9.5) closed sharply richer on a shortened data-light session ahead of tomorrow’s New Year’s Day holiday.  

• There has been no cash dealing in US tsys today with Japan out for a bank holiday. TYH5 is +0-05 firmer at 109-04 after Monday’s solid gains. Today’s US data (prior, est) includes FHFA House Price Index MoM (0.7%, 0.4%) and S&P CoreLogic CS 20-City MoM SA (0.18%, 0.20%) at 0900ET, Dallas Fed Services Activity (9.8, --) at 1030ET.
• Today, the local calendar was empty. The next data releases are CoreLogic Home Value and S&P Global PMI Mfg on January 2.
• Cash ACGBs are 8-9bps richer, and the AU-US 10-year yield differential is at -17bps, around the lowest level since June.
• Swap rates are 7-10bps lower, with the 3s10s curve flatter.
• The bills strip is stronger, with contracts +1 to +5.
• RBA-dated OIS pricing is 1-5bps softer across meetings, with late 2025 leading. A 25bps rate cut is more than fully priced by April (128%), with a 63% probability of a February cut. 

G10 currency moves have generally been limited with holiday-impacted trading thin. The greenback has trended lower through most of the session after yields fell on Monday, the BBDXY USD index is down 0.1%. The yen has moved the most against the US dollar with USDJPY down 0.3% to 156.42, close to the intraday low. JPY strengthened on Monday as US equities sold off and that trend has continued today with US equity futures slightly lower.

• AUDUSD is up 0.1% to 0.6229, close to the intraday high, after a low of 0.6211 earlier. It may face downward pressure with A$620mn of options due to expire on January 2 at 0.6175. There is also little support for Aussie from risk appetite. AUDJPY is down 0.2% to 97.42.
• NZDUSD is moderately higher at 0.5642 following a drop to 0.5633. AUDNZD is up 0.1% to 1.1040.
• EURUSD and GBPUSD are slightly higher at 1.0411 and 1.2559 respectively.
• Japan, South Korea and Thailand are closed and the equity markets that are open are currently mixed. The Hang Seng is up 0.2% but the CSI 300 is down 0.2% and the ASX -0.6%. Copper is up 0.1% and iron ore is around $101/t.
• Germany, Italy, Switzerland, Sweden and Norway have holidays, the UK closes at 12:30 and France at 14:05.
• US October house price data and December Dallas Fed print later.