JGB TECHS: (H5) Sharp Bounce Off Lows

In post-Tokyo trade on Friday, JGB futures closed slightly weaker, -3 compared to settlement levels, after US tsys US tsys finished Friday with modest losses. 

• US tsys were little changed after the economic data but edged higher in yield later in the session. 10-year notes closed 2bp higher at 4.54%.
• Financial markets were volatile into the global close amid conflicting news on the timing for implementing tariffs on US imports. Confirmation that tariffs would be set for Canada and Mexico at 25%, and China at 10%, and begin this week, saw equities retrace earlier gains.
• Over the weekend, Canada and Mexico have announced retaliatory tariffs on the US. In addition, China has said it will take counteractive measures and file a lawsuit with the World Trade Organisation. Trade tensions will remain in focus as markets open for the week.
• Trump has also threatened tariffs on the EU, with Japan not mentioned so far, at least as far as we can tell. It still may form part of the broader trade investigation, which the White House kicked off at the start of the Trump Presidency.
• Today, the local calendar will see Jibun Bank PMI Mfg and BoJ Summary of Opinions for the January MPM alongside BoJ Rinban Operations for 1-5-year and 10-25-year JGBs.

• Friday's session was dominated but tariffs headlines, tsys futures closed lower across all contracts, however we are opening mixed in Asia as trading gets underway with long end outperforming. TU closed -0-02⅝ at 102-26, and is another -0-01⅝ this morning at 102-24⅜, while TY dropped 12+ on Friday to 108-27, and is another -01+ this morning at 108-25+.
• Focus will be all on any further Tariffs headlines, Canada have announced they will retaliate with 25% tariffs, while Mexico have said they will impose something on the US however no further details yet.
• Cash tsys curves steepened on Friday, with yields closing -1bps to +3bps. The 2yr closed -0.9bps at 4.197%, while the 10yr closed +2.3bps at 4.539%. The 2s10s jumped 3bps to 33.749, while the 2s20s saw the largest steepening rising 4bps to 64.088.
• Hedge funds aggressively increased net short positions in SOFR and 10yr note futures in the week ending Jan. 28, with a net duration short increase of approximately 250k 10yr futures equivalents, the largest since November. They extended their net short in 10y futures by $13.3m/DV01 and in SOFR futures by $5.3m/DV01, while covering $3.9m/DV01 in Ultra 10yr note futures. Meanwhile, asset managers added to net long positions, extending their duration long by 146,000 10yr futures. They were most bullish on 5yr note futures, increasing their net long by $8.7m/DV01, while also extending net longs in 10yr note futures by $4.1m/DV01.
• Later today, we have S&P Global US Manufacturing PMI, ISM Manufacturing while later in the week focus will turn to corporate earnings, key CPI, PPI inflation measures and headline employment data for January.

• RES 3: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
• RES 2: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
• RES 1: 95.625/851 - High Jan 30 / High Dec 11 
• PRICE: 95.560 @ 16:35 GMT Jan 31
• SUP 1: 95.275 - Low Nov 14  (cont) and a key support 
• SUP 2: 94.477 - 1.000 proj of the Dec 11 - 23 - 31 price swing
• SUP 3: 94.495 - 1.0% 10-dma envelope

The Aussie 10-yr futures contract continues to trade below the Dec 11 high of 95.851. A stronger bearish theme would expose 95.275, the Nov 14 low and a key support. Clearance of this level would strengthen a bearish theme. For bulls, a confirmed reversal and a breach of 95.851, the Dec 11 high, would instead reinstate a bull cycle and refocus attention on resistance at 96.207, a Fibonacci retracement point.