US: Modi’s Visit:  Trade Imbalances in Focus. 

In Tokyo morning trade, JGB futures are stronger, +9 compared to settlement levels.

• M2 & M3 Money Stock 1.3% y/y and 0.8% y/y respectively in December. Today, the local calendar will also see Machine Tool Orders data alongside BoJ Rinban Operations covering 1-10-year and 25-year+ JGBs.
• Cash US tsys are flat to 1bp richer in today’s Asia-Pac session. Focus turns to today’s CPI inflation data for December where rental inflation is expected to accelerate to an average figure that firmly rounds to 0.3% M/M in December.
• BoJ Deputy Governor Himino’s speech on Tuesday is another sign that the policy board’s balance is now tilting toward another 25bp rate hike when they meet on Jan. 23-24.
• Himino shared his views on two factors – the momentum of domestic wage growth and US President-elect Donald Trump’s policies. In December, Governor Kazuo Ueda flagged these as key to watch before the BoJ moves toward another rate hike. (per BBG)
• Cash JGBs are mixed across benchmarks, but the swings are bounded by +/- 1bp. The benchmark 10-year yield is 0.7bp lower at 1.24% after making a fresh cycle high of 1.245% today.
• The swaps curve has twist-steepened, pivoting at the 20-year, with rates 2bps lower to 3bps higher.

• Cash tsys yields have opened flat to 1bps lower in Asia this morning, the curve has seen a slight flattening, with the 2s10s -0.5bps at 41.529. The 2yr is -0.4bps at 4.363%, the 10yr is -1bps at 4.783% after briefly trading above 4.80% overnight.
• Projected rate cuts through mid-2025 continue to retreat, current vs. late Friday levels* as follows: Jan'25 steady at -0.7bp, Mar'25 at -4.9bp (-4.9bp), May'25 -9.7bp (-9bp), Jun'25 -17.4bp (-16.5bp), Jul'25 at -20.7bp (-18.7bp).

Expectations of strong pricing at auctions were confirmed, with the latest ACGB Dec-34 supply achieving a weighted average yield that printed 0.70bp through prevailing mids (per Yieldbroker). The cover ratio also improved, rising to 2.8875x from 2.8375x.

• As highlighted in our auction preview, several factors likely supported today’s strong demand: a higher outright yield; a steeper curve; and the bond's inclusion in the XM basket.
• The deterioration in sentiment towards global bonds over recent months, however, likely weighed.
• The ACGB Dec-34 cash line and the XM futures contract are little changed in post-auction dealings.