JGBS: Cheaper But Worst Levels, New Cycle High For Long End Bonds

JGB futures are sharply weaker, -41 compared to settlement levels, after today’s 5-year auction result. The market opened stronger after weaker-than-expected Labor Earnings but that as quickly reversed. 

• Today’s 5-year bond auction demonstrated weak demand metrics, with the auction price failing to meet expectations. Moreover, the cover ratio declined and the auction tail lengthened.
• These results aligned with the poor demand metrics observed at this month’s 10-year auction and came despite offering a yield 15-20bps higher than last month, marking a cyclical peak.
• “The US brokerage (JP Morgan) predicts BoJ rate hikes in June and December, but possible US moves may complicate the picture: if tariffs weigh on global economic growth, that might hinder the BOJ’s push to raise rates, but the central bank may have to rush a rate increase if Japan is accused of weakening the yen.” (per BBG)
• Cash US tsys are 2-3bps richer across benchmarks in today’s Asia-Pac session.
• Cash JGBs are 2-8bps cheaper across benchmarks. The benchmark 10-year yield is 5.5bps higher at 1.575%, just below the cycle high of 1.580% set today.
• Swap rates are 2-4bps higher. 
• Tomorrow, the local calendar will see Q4 (F) GDP, Household Spending and Money Stock data, alongside BoJ Rinban Operations covering 1-3-year, 5-10-year and 25-year+ JGBs.

Over the weekend, data out showed that the Chinese economy is mired in deflation with both the PPI and CPI now in negative territory. PPI has been stuck firmly negative for multiple years now, showing the challenges companies face after 29 consecutive months of decline.  For CPI it was the first time it had fallen back into deflation in over a year.

• China’s main indexes were all lower with the Hang Seng down the worst performer down -2.1%, CSI 300 down -0.83%, Shanghai down -0.59% and Shenzhen down -0.44%.
• Korea’s KOSPI ignored the down day in China to post a +0.43% gain as it approaches key technical levels.
• Malaysia’s FTSE Malay KLCI took the lead from China, falling -0.19% continuing last week’s trend that saw a decline of -1.74%.
• Indonesia’s Jakarta Composite too was dragged lower by -0.54%, despite putting in one of the weeks in recent memory rising +5.8%.
• Other key markets were mixed with Singapore’s FTSE Straits Times down -0.16%, Thailand’s SE Thai down -1.00% whilst The Philippine Stock Exchange Index is up 1.00%.
• India’s NIFTY 50 is opening in a positive mood, up +0.33%, following on from last week’s gain of +1.93%. 

The USD BBDXY index sits up from earlier lows, last near 1268.5. Earlier we got to 1265.328, as dollar sentiment was weighed by US growth/recession concerns. Safe havens JPY and CHF have been the outperformers, although sit away from best levels. 

• Weekend comments from US President Trump, which didn't appear to rule out a recession, given the large economic transitions the administration is embarking on, hurt US equity futures from the open. Eminis sunk more than 1%, but sit better now, last off -0.45%.
• US Tsy futures spiked, but likewise, sit off highs. US 10yr yields opened near 4.255%, but sit back near 4.28% now.
• USD/JPY got to lows of 147.09, but sits back at 147.60 in latest dealings, still 0.30% stronger in yen terms. USD/CHF was last near 0.8785, up around 0.15% in CHF terms.
• We had Japan labor earnings data, where the headline figures were below expectations. Weaker bonus payments compared to Dec appeared to be in play. Underlying details on core pay was still firm.
• AUD/USD and NZD/USD have been range bound. The A$ was last near 0.6305/10. Session lows were at 0.6296, with a weaker yuan/softer China/HK equity backdrop not helping sentiment. Weekend data on China inflation showed CPI and PPI in negative territory. NZD/USD was last at 0.5710/15.
• USD/CAD has been relatively steady, last around the 1.4365 level. The new Prime Minister for Canada will be Mark Carney the former head of the BOC and BoE.
• EUR/USD got to highs of 1.0871, but sits back in the 1.0830/35 region now, little changed. EU equity futures are up around 0.80%, continuing to highlight relative EU outperformance compared to the US.
• Looking ahead, we have second tier EU data, while in the US it is just the NY Fed Survey of Consumer Expectations print on tap.