JGBS: Long End Rally Strongly After 40Y Auction

ACGBs (YM +4.0 & XM +3.5) are stronger and at Sydney session highs.

• Today, the local calendar has been light.
• Australian consumer confidence strengthened last week to mark its highest level since May 2022 as households cheered the RBA's first rate cut since the pandemic, according to ANZ and Roy Morgan Research.
• Cash US tsys are 2-3bps richer in today’s Asia-Pac session after yesterday’s gains.
• Cash ACGBs are 4bps richer with the AU-US 10-year yield differential at +2bps.
• Swap rates are 4bps lower.
• The bills strip has bull-flattened, with pricing flat to +5.
• Tomorrow, the local calendar will see January's CPI Monthly and Q4 Construction Work Done. The market expects Headline CPI to increase from 2.5% y/y to 2.6% y/y.
• The AOFM plans to sell A$800mn of the 3.75% 21 April 2037 bond tomorrow and A$700mn of the 1.75% 21 November 2032 bond on Friday.  

USD/CNH remains sub 7.2600, but dips back towards 7.2500 have been supported so far today. Current levels are close to the 100-day EMA, which we have been sub since late last week. Earlier highs of 7.2630 couldn't be sustained. 

• The weakness in onshore equities is likely not helping CNH, although the currency didn't follow the recent strong outperformance theme in local equities relative to the rest of the world.
• Some nervousness may be creeping into markets given some of the negative news flow around US/China trade/tariff related issues. We have heard the US pressing Mexico to impose tariffs on China imports, potential levies on China ships, investment curbs from China into key sectors like tech in the US, and a potential ramping up/tightening of semiconductors curbs that the Biden administration put in place (limiting chip exports from the US to China).
• These developments follow last week's remarks from US President Trump that a trade deal with China was possible.
• The USD/CNY fixing also edged to fresh highs since January.
• For USD/CNH sentiment in the implied vol space remains fairly benign though. 1 month implied vol levels hold close to recent lows, last near 4.52%. In the risk reversal space, the 1 month is up from recent lows sub -0.5000, but at -0.28 is still well off recent cycle highs. 

NZGBs closed at session bests, with benchmark yields 3-4bps lower. 

• With the local calendar light, today’s strength appears tied to cash US tsys, which are 2-3bps richer in today’s Asia-Pac session after yesterday’s gains.
• Nevertheless, NZGBs have underperformed US tsys, with the NZ-US 10-year yield differential ~2bps wider versus yesterday’s close.
• Swap rates closed 3-4bps lower, with implied swap spreads little changed.
• RBNZ-dated OIS pricing is slightly firmer across meetings today, holding 1bp softer to 7bps firmer than last Wednesday’s pre-RBNZ policy decision levels. Currently, 26bps of easing is priced for April, with a total of 58bps expected by November 2025.
• Tomorrow, the local calendar will see NZ Treasury Chief Economic Adviser Dominick Stephens deliver a presentation on the State of the Economy.
• On Thursday, the NZ Treasury plans to sell NZ$225mn of the 3.00% Apr-29 bond, NZ$225mn of the 3.50% Apr-33 bond and NZ$50mn of the 1.75% May-41 bond.