JGBS: Modestly Cheaper After Tokyo CPI Beat
In Tokyo morning trade, JGB futures are weaker, -23 compared to settlement levels, after closing the overnight session unchanged.
- Tokyo April CPI came in stronger across the board relative to market expectations. Headline printed 3.5%y/y versus 3.3% forecast and 2.9% prior. The ex fresh food measure was 3.4%y/y, (3.2% was forecast and prior 2.4%), while the ex fresh food, energy measure rose to 3.1%y/y (forecasts were at 2.8%, prior 2.2%).
- Base effects looked to have played a role in terms of the y/y bounce, given April prints last year were sub 2%y/y across all of these measures.
- Early headlines crossed from Japan FinMin Kato on talks with US Tsy Secretary Bessent. "*JAPAN'S KATO: CONFIRMED WITH BESSENT FX RATES SET BY MARKET", "*KATO: THERE WAS NO TALK FROM THE US SIDE ON FX LEVELS, TARGETS", per BBG. Further discussions are set to take place.
- BoJ Governor Ueda stated that the central bank will raise rates if the expected outlook is realised. Local media (NHK) also stated the government will decide on its tariff response package today.
- Cash US tsys are dealing flat to 1bp cheaper, with a flattening bias, in today's Asia session.
- Cash JGBs are ~1bp cheaper across benchmarks.
- Swap rates are 1-2bps higher. Swap spreads are wider.
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MNI: AUSTRALIA MONTHLY FEB CPI 0.1% MM, 2.4% YY
- MNI: AUSTRALIA MONTHLY FEB CPI 0.1% MM, 2.4% YY
AUSSIE BONDS: ACGB Dec-34 Supply Well Absorbed
Expectations of strong pricing at auctions were confirmed, with the latest ACGB Dec-34 supply achieving a weighted average yield that printed 0.45bp through prevailing mids (per Yieldbroker). The cover ratio also improved, rising to 3.7250x from 3.1688x.
- As highlighted in our auction preview, several factors were likely to impact demand. While the current outright yield was similar to the previous auction, the 3/10 yield curve was slightly steeper and at its steepest since December 2021.
- Demand for duration was also likely to be supported by the improvement in sentiment toward longer-dated global bonds, which has strengthened since mid-January despite some deterioration over the past week.
- The ACGB Dec-34 cash line and the XM futures contract are little changed in post-auction dealings.
JAPAN DATA: Services PPI Slightly Below Forecasts, Off Cycle Highs
The Feb Japan PPI services rose 3.0%y/y, against a 3.1% market forecast and 3.2% prior print from Jan (which was initially reported as a 3.1% rise). In m/m terms the services PPI was flat, while BBG notes the 3 month annualized paced slowed to 1.0% in Feb. This metric was at 4.8% in Dec last year.
- The chart below plots the services PPI against the headline national CPI (both in y/y term, the PPI is the white line). The PPI is just off cycle highs and still supportive of an elevated CPI backdrop, albeit without further upside in CPI pressures in the near term.
- Note the next release in focus will be Friday's Mar Tokyo CPI print.
Fig 1: Japan Services PPI & Headline CPI Y/Y
Source: MNI - Market News/Bloomberg
