JGBS: Cheaper Out To 10Y, Mixed Beyond Following 20Y Supply
Apr-15 05:53
JGB futures are weaker and hovering near session lows, -56 compared to settlement levels.
- With the local calendar light today, the key domestic driver was the poor 20-year auction. The 20-year JGB auction delivered poor results across key metrics. The low price underperformed dealer forecasts, which were set at 100.40 according to a Bloomberg poll. Moreover, the cover ratio decreased to 2.9639x from 3.4594x in the previous auction and the auction tail lengthened dramatically to 0.34 from 0.20.
- This result came despite the 20-year auction offering a cycle-high outright yield and a 10/20 curve at its steepest since 1999.
- Cash JGBs are weaker across the curve out to the 7-year tenor, with yields rising 4–6bps. The benchmark 10-year yield is up 2bps at 1.362%, well below the cycle high of 1.596%.
- Further out the curve, performance is mixed: the 20-year and 30-year bonds are 6bps and 3.5bps richer, respectively, while the 40-year underperformed, with yields 10bps higher.
- The swaps curve has twist-flattened, with rates 4bps higher to 9bps lower.
- Tomorrow, the local calendar will see Core Machine Orders data alongside BoJ Rinban Operations covering 1-10-year and 25-year+ JGBs.
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FED: March Economic Projections: Higher Inflation, Weaker Growth, Same Rates
Mar-14 21:28
The MNI Markets Team’s expectations for the updated Economic Projections in the March SEP are below.
- The unemployment rate is likely to rise slightly for 2025 alongside a downgrade in GDP growth, while the 2025 core and headline PCE inflation projections are set to rise again. Changes to later years will likely be limited, however.
- More detail on the shift in Fed funds rate medians is in our meeting preview - we will add more color next week.
FED: Market Pricing Nearly 3 2025 Cuts As Conditions Tighten
Mar-14 21:25
Amid rising government policy uncertainty, sentiment among businesses and consumers has fallen sharply since the start of the year, while equities and the dollar have reversed their post-election rise. Overall, financial conditions have tightened, even if stress is not yet mounting, e.g. no major widening of credit spreads (the accompanying chart shows the Fed’s financial conditions impulse index but only through January).
- Combined with growth fears, this has affected expectations for the Fed’s rate path, with around 18bp more cuts expected in 2025 compared with what was seen after the January FOMC. 65bp of cuts are priced for the year as a whole. 2025 cut pricing reached 71bp before the February inflation data and 76bp before the February payrolls report.
- A rate cut is seen with near zero probability for March’s meeting, but the first full cut is just about priced for June, with a second nearly priced by September.
- Chair Powell has no reason to endorse or refute these expectations – he’s likely to be happy with a press conference that ends with little discernable change in pricing.
CANADA'S CARNEY ANNOUNCES ELIMINATION OF THE CONSUMER CARBON TAX
Mar-14 21:17
- CANADA'S CARNEY ANNOUNCES ELIMINATION OF THE CONSUMER CARBON TAX
