RBNZ: “Scope” To Cut Further In Response To Tariff Impact

• Despite media reports on RRR cuts and monetary policy easing, China’s bond futures have remained in a tight range in Monday’s trading.
• China’s 10YR future is up just +0.02 to 107.745.
• The 10YR future sits at the approximate midpoint of the 100-day EMA of 108.04 and the 200-day EMA of 107.56.
• China’s 2YR future is up by just +0.01 at 102.44 has trended below the 200-day EMA of 102.62 for some time, following a recent sell off.
• China’s 10YR government bond is unchanged today at 1.84% against a 3-month trading range of 1.59% to 1.93%.
• Over the weekend, China’s February CPI and PPI were released and whilst impacted by Lunar New Year holidays, report a very weak environment for prices.
• The PBOC Governor Pan hinted at RRR cuts and monetary policy easing at the NPC.
• The challenge will be to ensure that any policy changes don’t lead to further inflation of the bond market, a challenge over the last year.
• In recent weeks, there has been some positive signs in the equity market prompting some suggestions that a bond equity switch is the likely driver of outcomes in the near term. 

ACGBs (YM -1.0 & XM -1.5) are modestly cheaper on a data-light session. 

• Cash US tsys are 2-3bps richer across benchmarks in today’s Asia-Pac session as Asian traders digest Friday’s US jobs data and remarks from Federal Reserve Chair Jerome Powell.
• Cash ACGBs are 1bps cheaper with the AU-US 10-year yield differential at +14bps.
• Swap rates are flat to 1bp higher.
• The bills strip is flat to -2 across contracts.
• RBA-dated OIS pricing is little changed across meetings today.
• Nevertheless, pricing remains mixed compared to February’s pre-RBA Decision levels—meetings through May are 3-4bps firmer, while those beyond are 1-14bps softer. A 25bp rate cut in April is given a 9% probability, with a cumulative 64bps of easing priced by year-end (based on an effective cash rate of 4.09%).
• This week, the AOFM plans to sell A$300mn of the 2.75% 21 May 2041 bond tomorrow and A$800mn of the 3.50% 21 December 2034 bond on Wednesday. 

US exceptionalism trades continue to be unwound in the first part of Monday trade. However, we are away from recent extremes for key benchmarks (US equity futures, Tsy yields and the USD index). Weekend comments from US President Trump, which didn't rule out a US recession this year, have weighed on US related assets. 

• BBG notes: "Asked on Fox News’ Sunday Morning Futures whether he’s expecting a recession this year, Trump said, “I hate to predict things like that. There is a period of transition, because what we’re doing is very big.” (see this link for more details).
• Measures of US recession probability risks have ticked higher, with Polymarket odds firming back towards recent highs. The US policy uncertainty index sits off recent elevated levels.
• US equity futures opened sharply weaker, Eminis down over 1%,although losses are now back at -0.50%. We are still above recent lows. In contrast, EU futures have opened higher, up over 0.80% at this stage.
• US tsys yields have ticked lower, the 10yr off close to 3bps, last near 4.27%, while the 2yr was back under 4%.
• The USD has softened, with the yen outperforming. The BBDXY index is off a further 0.10% to 1266.6. We are just up from recent lows for this index (1264.80). USD/JPY has slumped to 147.30, eyeing a re-test of 147.00.
• Earlier comments from Trump stated he thinks a government funding lapse probably won't happen. He also expressed optimism around Ukraine talks and TikTok's sale.