MNI EUROPEAN OPEN: JGB 2yr Yield Hits Fresh Highs Back To 2011

US TSYS: Treasuries Steady, Trade Tight Ranges Ahead of US Data

TYH4 is currently trading at 109-23, up + 04 from New York closing levels

Treasuries have had a very uneventful day as we head into a busy second half of the week for data.

• Mar'24 10Y futures have continue to trade in a very tight ranges during the Asia session, lows of 109-21 and highs of 109-25+. Futures remain in a downtrend and key levels to watch would be a retest of Mondays lows at 109-16, break of those levels would strengthen the bearish condition and signal scope for an extension towards 108-19+, the 61.8% Fibonacci level.
• Treasury curves are slightly flatter today, with the 2Y yield +0.3bp higher at 4.721%, 10Y -0.6bp lower at 4.274%, while the 2y10y is off yearly lows now -42.795.
• Earlier Kansas City Feb Pres Jeff Schmid, spoke on economic and monetary policy, reiterating that there is no rush to cut rates, and that the Fed needs convincing evidence before easing (MNI)
• Looking ahead: Durable Goods Orders, FHFA House Price Index, Conf. Board Consumer Confidence & Richmond Fed Manufact. Index out later today.

JGBS: Choppy Trading After CPI Data, BoJ Rinban Operations Tomorrow

In the Tokyo afternoon session, JGB futures are sitting weaker, -16 compared to settlement levels.

• There hasn’t been much in the way of domestic drivers to flag, outside of the previously outlined upside surprise for January’s National CPI.
• The MoF sold Y799.8bn of 5-year Climate Transition Bonds today. The bonds were sold for 99.81, had a yield of 0.339% and will settle on Feb. 28. Daiwa bought 20.89% of the issue.
• (Bloomberg) -- The sustainability of investor demand for Japan’s climate-transition debt is in question even after the five-year note sale beat estimates, according to Shoki Omori, chief desk strategist at Mizuho Securities in Tokyo. (See link)
• Cash JGBs are cheaper across the curve, with the 7-20-year zone (1.1-1.6bps cheaper) leading. The benchmark 10-year yield is 1.1bps higher at 0.697% versus the Nov-Dec rally low of 0.555% and the Feb high of 0.770%.
• The swaps curve has slightly bear-steepened, with rates flat to 2bps higher. Swap spreads are tighter out to the 20-year.
• Tomorrow, the local calendar is light, with Leading & Coincident Indices as the highlight.
• The BoJ will also conduct Rinban operations covering 5- to 25-year+ JGBs tomorrow.

AUSSIE BONDS: Narrow Ranges Ahead OF CPI Monthly Data Tomorrow

ACGBs (YM -1.0 & XM -3.5) are sitting cheaper and in the middle of today’s relatively narrow ranges. Without domestic data to drive the market, local participants have been content to keep their powder dry ahead of January CPI data tomorrow and Retail Sales on Thursday.

• January CPI is expected to increase moderately to 3.6% y/y from 3.4% in December with forecasts between 3.4% and 4%. As it is the first month of the quarter it will contain limited updated information on services and will mainly cover goods prices.
• On Thursday retail sales for January print and are expected to rise 1.6% m/m after falling 2.7%. The series has been volatile due to changes in the timing of seasonal discounts.
• US tsy dealings during today’s Asia-Pac session have also failed to provide any directional guidance. Cash US tsys are little changed across benchmarks.
• Cash ACGBs are 1-4bps cheaper with the AU-US 10-year yield differential 1bp lower at -14bps.
• Swap rates are 1-3bps higher, with the 3s10s curve steeper.
• The bills strip has bear-flattened, with pricing -1 to -3.
• RBA-dated OIS pricing is flat to 2bps firmer for meetings beyond June leading.
• The AOFM plans to sell A$800mn of the 3.75% 21 May 2034 bond on Friday rather than its usual issuance tomorrow.

NZGBS: Closed Slightly Cheaper Ahead Of Tomorrow’s RBNZ Policy Decision

NZGBs closed 2bps cheaper after dealing in relatively narrow ranges in today's local session. In the absence of domestic data, local participants have been content to sit on the sidelines ahead of tomorrow’s RBNZ Policy Decision.

• The RBNZ is probably still “watching, worrying and waiting” thus there is no incentive to change rates in either direction. While we don’t expect a rate hike, we believe the RBNZ will want to keep policy and thus financial conditions restrictive until it is confident that inflation will or has returned sustainably to the 1-3% target band.
• Given we expect the tightening bias to be retained, we also expect that the MPC will discuss a rate hike but then opt for no change. Updated staff forecasts will be presented and will be monitored for changes to the OCR path and CPI forecasts, especially upward revisions.
• There's a 27% probability priced in for a 25bp hike at this week's meeting, with an anticipated terminal OCR of 5.65% (reflecting a 60% probability of a 25bp hike) by the May meeting. By year-end, a cumulative 41bps of easing is factored into the pricing.
• See the full preview here.
• Swap rates closed flat to 4bp lower, with implied swap spreads sharply narrower.

ASIA EQUITES: China & HK Equity Mixed, Property Lower After Vanke Looks To Extend

Hong Kong and China equities have opened mixed on Tuesday, with property underperforming. China northbound flows have mark two days of outflows, while investors may still hold concerns around China's willingness to support the market adequately. The iron ore price is also signally some concern around the Chinese economy, now 20% off highs from Jan 1.

• Hong Kong equities are lower today, underperforming Mainland China equities. The HSI bounced off the 100-day EMA, a level it has been unable to trade above since August 2023 and now trades down 0.36%, HSTech has see-sawed today, at one point down 0.80% to now trade up 1.00%, while property continues to underperform down 2.00% after China Vanke Co, the nations second-largest developer after reports emerged that they were in talks to extend near term maturities.
• China Equities are mostly higher today with the with the CSI300 up 0.10% while the CSI1000 is up 1.22%
• China Northbound flows were -1.30b yuan on Monday, as traders looked to book profits ahead of a busy week for global data and strong recent performance. The 5-day average of 3.15b sits above the 20-day at 2.37B.
• The number of private funds each managing more than 10 billion yuan ($1.4 billion) shrank to 98 as of Feb. 26 from 104 at the beginning of the year, with a particular downsizing in quant funds, the Shanghai Securities News reports (BBG)
• HK Financial Secretary Paul Chan is expected to ease curbs on property transactions and announce moves to lift tourism and attract more investment inflows when he releases the budget on Wednesday.
• Looking ahead, Hong Kong has Trade Balance Data out later today.

ASIA PAC EQUITIES: Asian Equities Take A Break, Equity Flow Momentum Slows

Regional Asian Equities are mostly lower today, Japan is out-performer the wider region but off highs from earlier to now trade mixed. There has been little in the way of market headlines, earlier South Korea had store sales out showing a decline from the previous month, while retail sales came in at 8.2% vs 7.5% prior.

• Japan equities are mixed today, bank stocks are the top performer after Warren Buffet commentary around strong corporate governance and shareholder friendly policies has been seen to be boosting the sector, while the 2Y JGBs hit their highest levels since 2011, boosting expectations for higher profitability, the Topix Bank index is up 1.77% today and 1.38% for the past month. The Nikkei 225 has turned negative now down 0.11%, while the Topix is up 0.18%
• South Korean equities are lower today, investors remain cautious after the "Corporate Value-up" program fell short of expectations yesterday. Foreign equity inflows are slowly with the 5-day average is now at $65m Vs $322m a week ago, while the 20-day sits at $302m, the Kospi is 0.75% lower.
• Taiwan Equities are lower today, after initial opening higher and making fresh All-time highs. Investors may be looking to book profit ahead of a busy end to the week for global data. Equity inflows are slowing, although still comfortably in positive territory as the 5-day average is now at $242m while the 20-day sits at $482m, the Taiex is down 0.36%.
• Australian equities turned positive late in the session after miners were able to find a bid, this could be on the back of iron ore trading higher. the ASX Metals and Mining Index closed down 0.48% after being as low as 1.60%. The ASX200 closed 0.13% higher.
• Elsewhere in SEA, Malaysia equities are the out-performer as the weaker MYR is seen to be supportive to equities up 0.41%, NZ equities down 0.13%, Indonesia down 0.22% while Singapore equities are 0.90% lower.

OIL: Crude Holds Onto Monday’s Gains But Range Trading

Oil prices have been moving in a narrow range and are down slightly and off the intraday highs during today’s APAC session but have held onto Monday’s gains. Brent is around $82.43/bbl after a high of $82.72 earlier and WTI $77.51 after a high of $77.77.Increased demand from US and China refiners plus continued geopolitical issues have offset higher non-OPEC output. The USD index is little changed.

• US refining rates are increasing and the stock build seen over the last few weeks is expected to be run down as a result. There is data later today on US crude and product inventories.
• Offsetting factors have been keeping oil range bound through most of the year and Goldman Sachs and Bank of America both expect this to continue over the short term. Goldmans is forecasting prices to be $20 either side of $80 and BoA in the $60-$80 range, according to Bloomberg.
• Brent’s prompt spread has widened signalling that the market continues to tighten.
• Later the Fed’s Barr and Schmid speak, as well as the ECB’s Elderson and BoE’s Ramsden. In terms of data, there are US preliminary durable orders for January, December house prices and February consumer confidence.

GOLD: Steady After A Small Pullback On Monday

Gold is slightly higher in the Asia-Pac session, after closing 0.2% lower at $2031.24 on Monday.

• Monday’s move represented a further pullback from Friday’s spike to $2041.37 and came despite net USD index weakness on the day.
• Nevertheless, bullion continues to trade in a narrow range ahead of key US inflation on Thursday. The PCE Deflator, the Fed’s preferred inflation gauge, is expected to rise, highlighting the challenge for the US central bank of returning inflation back to target. Fed speakers continue to flag the need for more benign inflation data as a precursor to it lowering borrowing costs.
• According to MNI’s technical team, recent price activity has defined key resistance at $2065.5, the Feb 1 high, and key support at $1984.3, the Feb 14 low - both levels represent important short-term directional triggers.