JGBS: Modestly Cheaper After Tokyo CPI Beat

• MNI: AUSTRALIA MONTHLY FEB CPI 0.1% MM, 2.4% YY

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. 

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