BONDS: NZGBS: Closed On A Strong Note Ahead Of FOMC Policy Decision

Yen remains the clear outperformed in the G10 space, the pair last near 151.55/60, close to to session lows (151.51). The yen is up 0.50%, with NZD the next best performer up close to 0.25%. For USD/JPY techs, downside focus will remain on recent lows of 150.93 (recorded on Feb 7).  

• The earlier Q4 GDP beat was a clear yen positive, although after underperforming last week's G10 move against the USD, there is still room to play catch up.
• A further BOJ rate hike is arguably not priced in until the Sep meeting, although the end July meeting is close to full priced.
• On the data front we get the Jan national CPI this Friday. Note on Wednesday BoJ board member Takata speaks in Miyagi.  
• FX options volumes are large at this stage, under $1bn, with higher volumes in USD/CNY per DTCC. The 1 month risk reversal is off recent highs at -1.205 is still above earlier Feb lows (-1.69).
• Versus current spot, the largest expiring strikes for the coming week are center at 154.00 (just over $5bn), with close to 1.7bn at 152 and 154. 149.00 has $1.2bn worth of option expiries for the coming week.
• Futures volumes have ticked up but look normal for this time of day. 

At the Tokyo lunch break, JGB futures weaker, -24 compared to the settlement levels, and at session lows.

• A clear downtrend in JGB futures firmed further, with the latest fresh cycle lows reinforcing the condition. Note too that MA studies on the continuation chart are in a bear-mode setup, highlighting a clear downtrend. The 140.00 psychological handle has been pierced. Markets have shown through 139.38, a Fibonacci projection. For bulls, a reversal would open 142.73 and 144.48, the Dec 9 and Nov 11 high respectively. Gains would be considered corrective.
• Japan's preliminary Q4 GDP was above market expectations. Q3 also saw positive revisions. The q/q annualized outcome was +2.8% versus 1.1% forecast. In q/q terms, this was 0.7% (0.3% was forecast, while Q3 was revised up to 0.4% from 0.3% originally reported).
• Cash US tsys are closed for the Presidents Day holiday.  TYH4 is slightly weaker.
• Cash JGBs are 2bps cheaper to 1bp richer, with a flattening bias. The benchmark 10-year yield is 1.2bps higher at 1.374% versus the cycle high of 1.377%.
• Swap rates are 1-2bps higher. Swap spreads are wider.

Chinese and Hong Kong stocks are extending their recent rally, driven by AI optimism and tech momentum. DeepSeek’s breakthroughs in AI have fueled bullish sentiment, with major players like Tencent, Alibaba Health, and Ping An Healthcare surging. Tencent jumped 7.8% as its Weixin app began beta testing with DeepSeek, while healthcare AI stocks soared on expectations of improved margins and efficiency.

• Strategists at Goldman Sachs, Morgan Stanley, and JPMorgan have turned increasingly bullish on Chinese equities, forecasting further gains. Hong Kong’s options market is seeing record trading volumes, as investors pile into tech and EV bets, pushing the Hang Seng Tech Index to its highest level since 2022, with the Index up 0.40% today.
• Meanwhile, geopolitical concerns remain a headwind, with US tariffs and trade tensions in focus. The HSI Volatility Index has jumped 5pts in February, reflecting renewed market swings. However, the shift in sentiment post-DeepSeek suggests China’s tech sector is now viewed as a legitimate competitor in the AI race, attracting fresh investor flows.
• Key benchmarks in the region are currently: HSI +0.60%, HS China Enterprise +0.50%, HS Property, +1%, CSI 300 +0.10%, CSI 2000 +1.65%, while the Nasdaq Golden Dragon Index rose 2.27% on Friday.