JGB TECHS: (H5) Fresh Cycle Lows

In post-Tokyo trade, JGB futures closed weaker, -6 compared to settlement levels, after US tsys bear-steepened, with yields 1-4bps higher.

• Fed Chairman Powell repeated his January FOMC press conference at his Senate Banking Committee testimony yesterday.
• Focus on key US CPI inflation data today at 0830ET.
• (MNI) Bank of Japan officials have failed to reach a consensus on whether the pace of inflation will accelerate this year and when the Board will next raise the policy interest rate, with a change to how it formulates its outlook suggesting greater wage pressure, MNI understands.
• The Bank has recently placed more weight on the unemployment gap when determining the inflation outlook over the output gap, which suggests the labour market is tighter than previously thought and putting greater pressure on wages.
• Bank officials have played down the output gap when producing an inflation view due to the distorting impact of the labour shortage, shifting to a more US Federal Reserve-style focus on CPI and the unemployment rate.
• Local markets return today after yesterday’s holiday, with January money stock figures and preliminary machine tool orders data out (Jan). There is also 10-year linker supply due.

• Tsys futures closed Tuesday's session lower following Powell, in US Senate committee testimony, reiterated that there’s no urgency to cut interest rates further, there was strong demand for an auction of 3yr notes, which is the first of three Treasury coupon auctions this week, aided the steepening move. TU closed -01¼ at 102-22⅜, while TY closed  - 08+ at 108-30+.
• In options/flows there was a futures flows included a DV01 $1m block sale in SOFR futures, while a DV01 $1m buyer of 2yr note futures looked to fade the early weakness, while later in the session there was continued selling of 10yr puts, a sign of further profit-taking on a large wager built last week.
• Cash tsys curves bear-steepened, with yields closing 1bps to 4.5bps cheaper. The 2yr closed +0.9bps at 4.283%, while the 10yr closed +3.8bps at 4.535%. The 2s10s climbed 2.7bps to 24.568, while the 2s20s rose 3.3bps to 51.25
• The Fed's Williams expects inflation to continue declining toward the 2% target but warns of policy-related uncertainties. He sees the Fed’s current restrictive stance as supporting both inflation control and economic stability but notes that reaching 2% inflation will take time. He highlighted slowing wage growth and anchored inflation expectations as positive sign and forecasts 2% economic growth in 2025-2026, with inflation falling from 2.5% this year to 2% in the coming years.
• Ahead of CPI later today, fed-dated OIS is pricing in about 35bps of cuts this year, with the first full 25bps cut priced for September.

Bidding at today’s A$400mn auction of the 2.75% 21 May 2041 bond is likely to be shaped by several key factors: 

• The outright yield is 10bps lower than at the previous auction and 20bps below its November 2024 high.
• The 3/10 yield curve has steepened by 10bps since the last auction and is near its steepest level since August 2022.
• The 10/20 yield curve is also 10bps steeper than at the previous auction but remains 5bps below its September 2024 high.
• Sentiment toward longer-dated global bonds has improved since mid-January, with the US 10-year Treasury yield falling by 25bps, supporting demand for duration.
• Results are due at 0000 GMT / 1100AEST.