JGBS: Futures Maintain Positive Bias Amid Tsy Spillover, 2yr Debt Sale Today

The Australian Office of Financial Management (AOFM) will today sell A$300mn of the 4.75% 21 June 2054 Treasury Bond. The line was last sold on 22 May 2024 for A$800mn. The sale drew an average yield of 4.5951%, at a high yield of 4.5975% and was covered 2.8233x. There were 43 bidders, 19 of which were successful and 11 were allocated in full. The amount allotted at the highest yield as a percentage of the bid at that yield was 70.1%.

• This week's ACGB supply is below the recent average weekly issuance of A$1.5bn, with A$800mn of the 2.50% 21 May 2030 bond to be issued on Friday.
• According to the MYEFO 2024-25 Issuance Program Update from the Australian Office of Financial Management (AOFM), total issuance has been revised to around $95 billion ($46.4 billion has been completed). This includes around $2 billion of Green Treasury Bond tenders ($600 million has been completed). Issuance of Treasury Indexed Bonds is expected to be around $3 billion ($1.7 billion has been completed).
• The bidding at today’s auction is likely to be influenced by several factors. The outright yield is around 35bps higher than the previous auction level but still around 35bps lower than the November 2023 high.
• At around 50bps, the 10/30 yield curve is sitting in the middle of the range it has traded in since September last year.
• It is also important to acknowledge that the sentiment towards longer-dated global bonds has on balance improved over the past month.
• Results are due at 0000 GMT / 1100 AEST.

• Nvidia shares plunged 17%, erasing $589b in market value, the largest single-day loss in U.S. stock market history, amid concerns over Chinese AI startup DeepSeek's low-cost, competitive AI model. The selloff, which rippled through broader markets, was driven by fears that DeepSeek's efficiency-focused technology could disrupt the AI industry's reliance on expensive, high-end chips, a market dominated by Nvidia. DeepSeek's rise, despite U.S. export bans on advanced semiconductors, highlights China's growing innovation in AI.
• Broader markets followed suit, with the S&P 500 shedding 1.5% and the Nasdaq 100 dropping about 3%. Energy and utilities stocks tied to AI trends were also hit hard, with Vistra Corp., GE Vernova, and Constellation Energy suffering record declines of 28%, 22%, and 21%, respectively.
• In contrast, Apple rose 3.3%, reclaiming its position as the largest company by market value, while Meta gained 1.9%. Smaller tech companies showed mixed results: Aurora Mobile surged 142% after announcing DeepSeek integration, while MicroCloud Hologram gained 8.4%. 

• Tsys futures closed higher on Monday, following a strong haven bid as equities in particular tech stocks were hit hard with the NASDAQ down 3%, and NVIDIA falling 17%. Yields across many maturities closed at YTD lows, while the 2 & 5yr auctions were well received. TU closed +0-04⅞ at 102-29, while TY closed +0-22 at 109-05, with futures volumes more than 40% above the 20-day averages
• Cash tsys curves closed mixed, the belly has outperformed with the 7yr closing -9.3bps at 4.443%, while the 10yr is -8.7bps at 4.534%. The 2s10s closed -2bps at 33bps, while the 5s10s closed +0.5bps at 19.50bps.
• December's pickup in new home sales was larger than expected, reaching 698k (675k expected) on an seasonally-adjusted annualized rate basis, up from 674k in November (revised up from 664k).
• Fed-dated OIS contracts priced in a more dovish Fed, anticipating 50bp of easing by the end of this year vs 40bp at Friday’s close.
• Projected rate cuts through mid-2025 regain traction vs. late Friday (*) levels as follows: Jan'25 at -0.7bp (-0.1bp), Mar'25 at -8.3bp (-6.9bp), May'25 at -15.9bp (-13.6bp), Jun'25 at -27.9bp (-24.7bp), Jul'25 at -33.7bp (-28.6bp).
• Focus remains on Wednesday's FOMC policy annc, no move expected, as well as a heavy slate of corporate earnings later today: PACCAR, Sysco Corp, Synchrony Financial, Lockheed Martin Corp, Veradigm, Royal Caribbean, Polaris Inc., Boeing, NextEra Energy, JetBlue Airways, General Motors, Kimberly-Clark Corp, Invesco, Starbucks, Qorvo and Stryker Corp.