JGBS: Short-End Heavy After Rinban Showed Heavy Selling Ahead Of US Payrolls

JGB futures are sharply weaker, -32 compared to the settlement levels, but off session cheaps. 

• With local calendar light the focus has been on US tsys after yesterday's bear-steepener following stronger-than-expected ISM services and JOLTS data. Currently, cash US tsys are little changed in today’s Asia-Pac session.
• MNI's preview of tonight’s release of the FOMC’s Minutes includes what to watch for upon release; MNI's FOMC Hawk-Dove Spectrum; key highlights of FOMC participant commentary since the December meeting; and sell-side analyst expectations. See here  
• Japanese yields are running at the highest since July 2011, with cash JGBs 1-3bps cheaper across benchmarks. The benchmark 10-year yield is 2.5bps higher at 1.160% after setting a fresh cycle high of 1.183% today.
• Swaps are mostly cheaper, with rates 1bp richer to 4bps higher. Swap spreads are mixed.
• BoJ-dated OIS pricing is marginally mixed versus pre-Dec MPM levels, with meetings out to June 2025 1-3bps softer but meetings beyond 1bp firmer.
• Tomorrow, the local calendar will see Real and Labor Cash Earnings, Weekly International Investment Flows and Tokyo Avg Office Vacancies data alongside 30-year supply.

Aggregate FX moves are very muted in the first part of Wednesday trade. The USD BBDXY index is little changed versus end Tuesday levels in NY, last near 1307. 

• AUD/USD moved from above 0.6240 to 0.6212 post Nov CPI data. The data showed headline CPI pressures ticking up in y/y terms, but the RBA's preferred inflation measure, the trimmed mean, eased back to 3.2% y/y from 3.5% (closer to the top end of the RBA's target band). An RBA cut is more than fully priced for the April meeting and 64% for the February meeting.
• Follow through downside for the A$ hasn't materialized though, we sit back in the 0.6230/35 region now, little changed for the session. NZD/USD saw some negative spill over from the A$ dip, but likewise has been supported, the pair last near 0.5635.
• China and Hong Kong equities are down at the lunch time break, off 1.5-1.6%, with sentiment not boosted by details around the expanded consumer trade in appliance/motor vehicle program.
• US equity futures are up a little over 0.20%, which is perhaps providing some offset. In the US yield space, we have seen little net movement after Tuesday's yield bounce following better than expected data outcomes.
• USD/JPY has tracked recent ranges, with Tuesday's high above 158.40 holding, while dips sub 158.00 have been supported. EUR/USD is a touch higher, last near 1.0350.
• Later the Fed’s Waller speaks on the economic outlook and the December FOMC minutes are published. US jobless claims, December ADP employment and November consumer credit as well as November German orders & retail sales and December euro area European Commission survey print.

Previously the RBA had been concerned that Australian inflation was higher than other OECD countries. The picture is now mixed. However, Australia’s unemployment rate at 3.9% is below most developed markets contributing to the RBA’s extended monetary policy pause. In November underlying trimmed mean CPI rose 3.2% y/y, higher than the euro area, Norway and Canada but is now in line with the US, who has experienced stronger GDP growth. While services inflation has also been sticky in Australia rising 4.2% y/y in November, it is better than in the US (4.5%) and UK (5.0%) but still higher than the euro area and Norway. 

OECD underlying CPI y/y%

Source: MNI - Market News/ABS/Refinitiv