JGBS: Cheaper But Off Worst Levels Following Natl CPI’s Beat

The USD is off earlier highs, with NZD rebounding from post RBNZ lows. We were last near 1289.75 for the BBDXY, still little net change for the session. 

• NZD/USD got to lows of 0.5678 in the aftermath of the RBNZ easing decision. The central bank cut rates by 50bps as forecast and the statement indicated further easing was coming.
• We sit higher now, last near 0.5710/55, a +0.55% rebound from earlier session lows. RBNZ Governor Orr has stated in his press conference that 25bps cuts at the next policy meetings (April and May) is likely if the economy evolves as expected.
• NZD/USD seemed to react to these comments, with the market maybe looking for a faster easing pace, although Orr's comments are broadly consistent with the earlier OCR projections. The other factor in play for NZD was the rebound in Hong Kong and China equities. The HK HSI tech index was down 2.3% but rebounded back into positive territory.
• AUD/USD is also up from lows, the pair last near 0.6355, after earlier lows of 0.6342. The Q4 wages data released earlier didn't shift FX sentiment. The AUD/NZD cross got to highs of 1.1175 post the RBNZ, but now sits close to session lows, last near 1.1125/30.
• USD/JPY is little changed for the session, last close to 152.05. We heard from board member Takata earlier, who stated that further gradual policy adjustments were likely.
• The equity tone has also likely influence yen from a cross standpoint. NZD/JPY got to lows of 86.17 earlier, but we now sit back at 86.80/85. 

At The Tokyo lunch break, JGB futures are stronger, +15 compared to settlement levels.

• BoJ board member Takata reiterated that the central bank is in a position to adjust policy rates further if the outlook is met. Takata stated that risks of big market moves have been lowered, giving the central bank more flexibility. This is a likely nod to last year's sharp risk off move in the wake of the end July hike by the central bank (although other factors were also in play).
• Japan's January trade figures were mixed. Exports rose 7.2% y/y, close to the 7.7% forecast and up from the prior 2.8% pace. Imports surged though to 16.7%y/y, from 1.7% in Dec and against a 9.3% forecast.
• Other Japan data released showed core machine orders for Dec weaker than forecast. We fell 1.2% m/m, against a 0.5% forecast and 3.4% prior. In y/y terms we printed 4.3% (against a 7.5% forecast and 10.3% prior).
• Cash US tsys are little changed in today’s Asia-Pac session after yesterday’s heavy session.
• Cash JGBs have slightly bull-steepened, with yields flat to 1bp lower across benchmarks. The benchmark 10-year yield is 0.2bp lower at 1.428% after hitting a fresh cycle high of 1.446%.
• Swap rates are 1-5bps higher, with the 20-year underperforming. Swap spreads are wider.

• Since the lows in early January, bond yields in China have inched higher quietly. From a low of 1.01%, China’s 2YR Government bond yield has moved 39bps higher to 1.40% for yesterday’s close. For the 5-year, yesterday’s close of 1.53% represented a move of +21bps higher. The 10-year benchmark has risen from a low of 1.59% to yesterday’s close of 1.71%.
• When considering the moves in bond yields compared to the move to the CSI 300, it poses something interesting.
• Finishing 2024 at 3,934.91, the index closed yesterday at 3,912.78 – a decline of -0.56%.  However, it is the move in recent trading sessions that calls for further investigation.
• Against a backdrop of a 2.7% gain in the CSI 300 during the trading sessions on Thursday and Friday last week, and Monday; the 10YR bond yield rose 7bps, and the 2YR is 13bps higher.
• This comes after a period where bond markets had been relatively calm, despite news that the PBOC had halted their bond purchases in mid-January.
• The move higher yields is also against a backdrop of comments from the PBOC Governor in Saudi Arabia on Sunday that more accommodative monetary policy can be expected.
• A further development in recent days has been the meeting between President Xi and Alibaba’s Jack Ma and other key entrepreneurs; in a sign that the relations between the President and the private sector could be improving.
• Whilst a short period move does not make a trend, the CSI 300’s rally and the inverse move from bonds is worth noting. 

Figure1:  CGB10YR  and CGB 2YR yields (source: BBG)