JGBS AUCTION: Poll: 20-Year JGB Auction

RBA-dated OIS pricing is flat to 3bps firmer across meetings today. 

• A 25bp rate cut is more than fully priced for April (128%), with the probability of a February cut at 88% (based on an effective cash rate of 4.34%).
• The last time the market was this confident about a rate cut was in March 2020, when expectations proved correct—the RBA cut rates twice that month, once at the scheduled meeting and again on the 20th.
• Notably, the last time the RBA disappointed market expectations by not cutting when a more than 75% probability was priced was in November 2012. However, even then, the RBA cut by 25bps in the meetings on either side—October and December 2012.
• Based on historical patterns, it would be highly unusual for the RBA not to follow through on market expectations, especially since it has made no attempt—officially or unofficially—to steer expectations away from a cut, as it has done in the past.

Figure 1: RBA Cash Rate Vs. 1st OIS Contract

Source: MNI – Market News / Bloomberg

ACGBs (YM -2.0 & XM -2.0) are slightly cheaper but around Sydney session highs on a data-light day.

• Cash US tsys are ~1bp richer in today’s Asia-Pac session after Friday’s heavy post-payrolls session. Headlines have crossed from Bloomberg, with US President Trump stating that the US will announce tariffs of 25% on all steel and aluminium imports from Monday. Trump didn't announce a time when these tariffs will take effect.
• The Australian government is still trying to secure exemptions to new 25% tariffs that Donald Trump says will be imposed on all steel and aluminium imported into the United States, making the case for “free and fair trade” with America. (per Guardian)
• Cash ACGBs are 1-2bps cheaper with the AU-US 10-year yield differential at -10bps.
• Swap rates are 1-2bps higher.
• The bills strip -1 to -3.
• This week, the AOFM plans to sell A$400mn of the 2.75% 21 May 2041 bond on Wednesday and A$700mn of the 1.50% 21 June 2031 bond on Friday. 

Asian equities are mostly lower today as investors reacted to U.S. President Donald Trump’s announcement of 25% tariffs on steel and aluminum imports. Japan’s Nikkei 225 and Topix Index both fell 0.3% earlier as concerns over inflationary pressures and reduced expectations for U.S. rate cuts weighed on sentiment, though traders held back on aggressive selling following a trade meeting between Japan and the U.S, the Nikkei is now trading 0.10% higher. South Korea’s Kospi is trading -0.15%, Taiwan's TAEIX is 0.85% lower while both Australia's ASx 200 and New Zealand's NZX 50 trading 0.35% lower.

• Steel and aluminum stocks across Asia declined sharply, with South Korea’s Posco Holdings (-3.6%), Japan’s Nippon Steel (-2.6%), and Australia’s South32 (-1.4%) among the notable losers. The broader commodity market saw gains, as aluminum (+0.6%) and copper (+1.6%) rose on the London Metal Exchange, while zinc fell 0.4%.
• Chinese e-commerce stocks, including Alibaba and JD.com, outperformed as Trump delayed the suspension of de minimis exemptions, temporarily maintaining duty-free status for low-value imports from China. Meanwhile, analysts believe the overall economic impact of U.S. steel and aluminum tariffs on emerging Asia will be limited, as past experiences in 2018 showed little disruption to exports.