JGBS: Futures Unchanged After Natl CPI Printed Close To Expectations

The BoJ offers to buy a total of Y1.075tn of JGBs from the market:

• Y300bn worth of JGBs with 1-3 Years until maturity
• Y300bn worth of JGBs with 3-5 Years until maturity
• Y325bn worth of JGBs with 5-10 Years until maturity
• Y150bn worth of JGBs with 10-25 Years until maturity

Q4 CPI came in close to consensus and RBNZ forecasts with headline steady at 2.2% y/y. Importantly, domestically-driven non-tradeables printed lower than expected at 4.5% y/y, its lowest since Q3 2021. Thus Westpac doesn’t think today’s data would have been a surprise to the RBNZ which it expects to ease 50bp in February due to weak growth. But it doesn’t see all the risks to 2025 inflation to the downside given the soft NZD and global uncertainties.

• Westpac observes that “while the December quarter did see large increases in some specific areas, price and cost pressures more generally have continued to ease. That was reflected in measures of core inflation which have continued to trend down and are now back inside the RBNZ’s target band.”
• “Inflation excluding food, fuel and energy costs fell to 3.0% from 3.1%. Trimmed mean inflation fell to 2.4% from 2.5%. Weighted median inflation fell to 2.6% from 2.8%.”
• “The underlying trend in non-tradables inflation looks in line with expectations for a continued gradual easing in domestic prices. … price and cost pressures have been cooling in parts of the domestic economy that are sensitive to the high level of interest rates.”
• “Tradables inflation was stronger than expected in the December quarter. However, that was mainly due to the large increase in used car prices. The broader trend in imported inflation remains soft.”
• “The downturn in imported inflation looks like it is now coming to an end, especially with oil prices pushing higher and the NZD dropping in recent weeks. Over the coming year, even though we don’t expect high levels of tradable inflation, it won’t have the same dampening impact on overall consumer prices that we saw in 2024.”

In Tokyo morning trade, JGB futures have given up the overnight uptick and is now trading lower, -6 compared to settlement levels.

• Today, the local calendar will see BoJ Rinban Operations covering 1-25-year JGBs.
• Cash US tsys are 1-2bps cheaper in today’s Asia-Pac session after yesterday’s bull-flattener.
• Cash JGBs are flat to 1bp cheaper across benchmarks. The benchmark 10-year yield is 0.4bp higher at 1.198% versus the cycle high of 1.262%.
• Swap rates are ~1bp higher. Swap spreads are mixed.
• BoJ Policy Decision is on Friday, with a 25bp hike expected. A hike will put the BoJ's key rate at 0.5%, its highest level since 2008.
• "The BoJ is moving toward deciding to raise interest rates at its policy meeting this week, Kyodo News reports." (per BBG)
• Market expectations currently indicate: a 92% probability of a 25bp hike in January; a cumulative 96% chance by March; and a full 25bp increase priced by May 2025.