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Free AccessMNI EUROPEAN MARKETS ANALYSIS: BoJ Ramps Up JGB Purchases, Buys Longer-Dated Debt
- The BoJ steps in firmly in defence of its cap on 10-Year JGB yield, signalling commitment to ultra-loose policy settings ahead of this week's meeting. The Bank ramps up bond purchases and offers to buy debt from further out the curve, but JGB futures pull back sharply in afternoon trade.
- Asia-Pac equity markets take a beating from recent hawkish Fed repricing, which signals a high likelihood of a 75bp rate rise. But U.S. e-mini futures edge higher as sentiment stabilises.
- The greenback goes offered against all major peers save the yen, while the Aussie dollar outperforms on the back of stabilisation in risk appetite.
US TSYS: T-Notes Stabilise, Cash Curve Flattens Tad More
T-Notes stabilised in Asia, trading sideways within a 0-12 range through the Tokyo session, as the dust settled after a sharp sell-off Monday on the back of hawkish Fed repricing. TYU2 last deals -0-02 at 115-07, with Eurodollar futures running -26.0 to +1.5 ticks through the reds.
- Cash Tsy curve flattened slightly further, with yields last seen -1.2bp to +3.3bp. Inversion in the 2-/10-Year & 5-/30-Year sectors deepened.
- Fed pricing stabilised, with fed funds futures almost fully pricing a 75bp rate rise on Wednesday, with several sell-side desks turning more hawkish.
- The U.S. docket is headlined by monthly PPI report today, the final data signal surrounding inflation ahead of Wednesday's rate decision from the FOMC.
JGBS: Steepening Gets Unwound As BoJ Boosts Bond-Buying But Futures Pare Gains
The BoJ demonstrated its commitment to ultra-easy policy and used bond-buying operations to enforce its yield target. The Bank unexpectedly raised the size of 5- to 10-Year JGB purchases to Y800bn from the planned Y500bn to reinforce its impact on benchmark 10-Year yield, which on Monday breached the 0.25% cap. While the yield on 10-Year JGBs remained virtually flat in anticipation of the operation, the super-long end of the curve witnessed heavy selling, with the 10-/30-Year JGB yield spread widening to more than 100bp. With speculation re: potential action on the super-long end doing the rounds, the Bank followed up by tweaking its Rinban plan for Wednesday, increasing the sizes of scheduled purchases across 1-3, 3-5 & 5-10 Year baskets and adding operations covering 10-25 & 25+ Year JGBs. In a final step, the Bank offered to buy 10-25 & 25+ Year JGBs in an unscheduled operation in a bid to rein in rising super-long yields.
- Action to enforce the YCC framework comes ahead of Friday's BoJ monetary policy meeting, lending support to expectations that officials will keep the main policy parameters unchanged, sticking with their ultra-loose stance.
- JGB futures crept higher from the off, as participants awaited BoJ reaction to 10-Year yield testing the ceiling of the Bank's tolerance band. JBU2 ran as high as to 148.39, but then staged a firm pullback in the wake of the BoJ's final bond-purchase announcements. It last trades at 147.90, 60 ticks below previous settlement.
- Powerful use of bond-buying proved only partially effective, with initial steepening largely unwound. 10-/30-Year JGB yield spread is back from highs (101.4) and last sits at 93.3bp as super-long yields pared gains.
- Still, the curve remains higher, 10-Year yield still sits above 0.25% and futures pulled back sharply from session highs after the BoJ announcements, suggesting that the market is yet to be convinced.
- Domestic data and an auction for off-the-run JGBs with 15.5-39 Years until maturity were overshadowed by BoJ action.
BOJ: BoJ Boosts Size Of Additional Bond-Buying Operation
The Bank of Japan has offered to buy Y800bn of 5- to 10-Year JGBs today in an unscheduled bond-purchase operation.
- The operation was announced on Monday as benchmark 10-Year yield breached the 0.25% ceiling.
- The size of the operation was larger than the previously announced Y500bn as global bond markets remain under pressure.
BOJ: BoJ Offers To Buy Super-Long JGBs In Unscheduled Operation
The BoJ offers to buy a total of Y150bn worth of JGBs from the market in an unscheduled operation:
- Y100bn worth of JGBs with 10-25 Years until maturity
- Y50bn worth of JGBs with 25+ Years until maturity
BOJ: Wednesday Bond-Purchase Operation Sizes Boosted Across Five Baskets
The BoJ tweaks debt-buying operation plan for Wednesday, boosting purchases across five maturity baskets. It will now offer to buy a total of Y2.45tn of JGBs from the market:
- Y625bn worth of JGBs with 1-3 Years until maturity (prev. Y475bn)
- Y625bn worth of JGBs with 3-5 Years until maturity (prev. Y475bn)
- Y800bn worth of JGBs with 5-10 Years until maturity (prev. Y500bn)
- Y250bn worth of JGBs with 10-25 Years until maturity (additional operation)
- Y150bn worth of JGBs with 25+ Years until maturity
AUSSIE BONDS: ACGBs Catch Up With Global Bond Rout
Aussie bonds got hammered on return from holidays, playing catch-up with sharp sell-off in U.S. Tsys inspired by aggressive hawkish Fed repricing.
- Cash ACGB curve bear flattened, with yields last seen 21.0-37.0bp higher, as the rate-sensitive 3-Year debt leads losses. 10-Year yield showed above 4% for the first time in eight years before trimming gains.
- Cheapening impetus crept into Aussie bond futures. YM last -25.6 & XM -21.4, with bills running 36-42 ticks lower through the reds.
- The AOFM sold A$100mn of 20 Sep '30 inflation-indexed bond, drawing bid/cover ratio of 1.76x.
- Domestic data failed to move the space, as NAB Business Conditions rose to a 10-month high in May and CBA household spending grew 2.9% M/M over the same period.
FOREX: Yen Dips As BoJ Steps Up YCC Enforcement, Aussie Gains On Risk Stabilisation
The greenback lost steam after the BBDXY index rallied to its best levels in more than two years on Monday on the back of aggressive hawkish Fed repricing. Fed funds futures are almost fully pricing a 75bp rate rise at the upcoming monetary policy meeting, with a growing number of sell-side analysts tweaking their calls accordingly. Yet, the U.S. dollar slipped against most of its major peers, amid broader stabilisation across G10 FX space.
- The yen was the only major currency to underperform the greenback and it was BoJ's fault again. Spot USD/JPY popped higher alongside other JPY crosses as the Bank stepped up bond-buying planned for Wednesday and added operations covering longer-dated tenors to enforce its YCC policy. The move was interpreted as a sign of the BoJ's unwavering commitment to stick with its ultra-loose policy stance as we approach Friday's monetary policy meeting.
- Continued attempts by Japanese FinMin Suzuki to jaw-bone the yen proved ineffective, despite veiled threats of an FX intervention ("we'll continue to closely communicate with major currency authorities abroad, and will respond with appropriate measures if necessary").
- The Aussie outperformed, ready to snap its four-day losing streak against the U.S. dollar, as domestic financial markets re-opened after a long weekend. Stabilisation of risk lent support to the Antipodean currency, as U.S. e-minis edged higher, highlighting a modicum of reprieve for the equity space, even as regional indices fell on a negative lead from Wall Street.
- German ZEW Survey & final CPI, UK jobs data & Swedish CPI are due in European hours. Later in the day, U.S. PPI will provide the final insights on inflation dynamics ahead of Wednesday's FOMC meeting. The central bank speaker slate features ECB's Schnabel.
FOREX OPTIONS: Expiries for Jun14 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0413-25(E3.2bln), $1.0430-40(E930mln), $1.0635-50(E1.0bln)
- USD/JPY: Y131.00($850mln), Y132.30-50($796mln)
- GBP/USD: $1.2200-05(Gbp518mln)
- AUD/USD: $0.7130-40(A$688mln)
- USD/CNY: Cny6.7500($688mln)
ASIA FX: USD/Asia Pairs Down From Earlier Highs
Asian FX has been mixed today. We have seen a sharp reversal in USD/CNH, down around 0.5%, SGD and PHP are also off recent highs. THB and IDR continue to underperform though.
- CNH: USD/CNH tracked above 6.7800 earlier, with the USD/CNY fixing neutral rather than leaning against depreciation pressures. However, this proved to be the top and we fell back through 6.7500 as the session progressed. There didn't appear to be a fundamental catalyst for the move. China equities generally remain under pressure (although Hong Kong tech shares have rebounded), while the onshore covid trend deteriorates. Discussions between high level US and China officials was a positive though, which may lead to a call between US President Biden and China President Xi.
- KRW: 1 month USD/KRW has oscillated around the 1290 level today. Spot USD/KRW opened higher but found selling interest above 1290. Korean officials again warned about volatility in financial markets. The Kospi was weaker today but at this stage is down less than 1%, so not as bad as feared based off overnight tech weakness.
- INR: USD/INR is drifting higher in early trading. We are at 78.06, down from yesterday's highs of close to 78.30. Likely RBI intervention curbed yesterday's spike. Note wholesale prices data is due later today. The market looks for a 15.3% YoY print, versus 15.08% previously.
- IDR: Spot USD/IDR extends its bullish run as hawkish Fed repricing rendered U.S. Tsy yields sky bound early this week. We are back above 14700, although down from opening highs above 14750 (last 14720). Indonesia trimmed the maximum export levy on crude palm oil to $200/ton from $375/ton, effective from June 14.
- PHP: USD/PHP is pull back a touch, with the pair down to 53.22, after spiking close to 53.40 in early trade. OCTA Research warned that COVID-19 situation in the National Capital Region is escalating to "moderate" risk amid a steady rise in new cases. But the Department of Health said Metro Manila will not yet be promoted to Alert Level 2, which would entail stricter virus countermeasures, but such decision might be taken if cases continue to rise.
- THB: USD/THB is up higher today, up a further 0.40% to 34.97. This is fresh 4 year highs. Surprisingly hawkish comments from BoT Gov Sethaput yesterday, who said that "too slow a rate hike is not good" in an apparent departure from previously cautious stance on tightening, has failed to offset the impact of piling hawkish FOMC bets.
EQUITIES: Still In The Red
The majority of Asia Pacific equity markets are in the red. For the major indices losses are between 1-2%, if not slightly larger. Australian markets are down close to 5%, reflecting catch up from yesterday's holiday. Bitcoin's 10% fall added to the risk off mood. Only a couple of South East Asian markets are managing to print higher within the region.
- In China, the CSI 300 has dipped 2%, while CHINEXT is down 3% at the time of writing. Infrastructure related names are doing better after the PBoC urged banks to boost loans for major water infrastructure projects under the 800bn yuan quota. Onshore covid trends are moving unfavorably though, which could weigh on the domestic rebound.
- The HSI is off by a more modest 1%, but tech shares are underperforming, down by over 2%. The China Golden Dragon index fell by close to 7% overnight and is now back below the 100 day MA.
- Japan benchmarks are down by 1.5 to 2%. Earlier comments on FX markets haven't had much follow through. USD/JPY is back above NY closing levels to 134.50. The BoJ remains committed to its yield target. The weaker yen may aid equities in the afternoon session.
- Australian equities have fallen by close to 5%, reflecting some catch up from yesterday's holiday. Materials, which are linked to commodities and the global outlook, have fallen sharply (-5.9%), while local bank stocks (financials -4.7%) have also been under pressure.
- US equity futures have tracked higher for most of the session, with the S&P500 up by around 0.60%, tech slightly better.
GOLD: Recovers Some Ground
Gold has recovered some ground following the 2.8% drop to start the week. We are back at $1826, around 0.35% higher than NY close under $1820.
- The weaker USD trend has likely aided gold's rebound today. The DXY has edged back below 105.00 as the session has progressed.
- Regional equities have also been downbeat, likely aiding demand from a safe haven standpoint. However, US equity futures have firmed, back above 1% for both the S&P and Nasdaq at the time of writing, following strong sell-offs in recent sessions.
- US yields remain firm, particularly at the front end, although the 2/10s curve has inverted, which can also be construed as a negative risk signal and therefore supportive of gold.
- US real yields have surged back to 2019 highs though, with a number of banks now expecting a 75bps hike from the Fed this week.
- Arguably we should struggle to get ahead of the 200 MA, which comes in at $1843.3, ahead of the FOMC this week. The mid-May low of just below $1800 may come into play on further USD strength.
OIL: Holding Up
Brent crude dips sub $122/bbl are still being supported for now. Tight supply and firm demand out of Asia are being cited as supportive factors.
- Libyan supply is being curtailed by on-going domestic political turmoil. Daily output is reportedly down to 100k barrels per day, compared to 1.2mln last year.
- S&P Global Vice Chairman Daniel Yergin stated that the oil market could withstand a recessionary hit, describing the supply situation as razor thin.
- Fears around a delayed China rebound have yet to dent sentiment, with Covid cases delaying the re-opening of schools and restaurants (for in-person dining) in Beijing and Shanghai.
- Demand from Asian countries for August oil delivery reportedly remains strong though, which is providing some offset from a sentiment point of view to the China headwinds.
- US President Biden will visit Saudi Arabia on July 15th and 16th. No doubt oil prices will form part of the discussion, with the US side pushing for relief as quickly as possible.
UP TODAY (Times GMT/Local)
Date | GMT/Local | Impact | Flag | Country | Event |
14/06/2022 | 0600/0700 | *** | ![]() | UK | Labour Market Survey |
14/06/2022 | 0600/0800 | *** | ![]() | DE | HICP (f) |
14/06/2022 | 0600/0800 | *** | ![]() | SE | Inflation report |
14/06/2022 | 0600/0800 | * | ![]() | DE | Wholesale Prices |
14/06/2022 | 0900/1100 | *** | ![]() | DE | ZEW Current Expectations Index |
14/06/2022 | 0900/1100 | *** | ![]() | DE | ZEW Current Conditions Index |
14/06/2022 | 1000/0600 | ** | ![]() | US | NFIB Small Business Optimism Index |
14/06/2022 | 1230/0830 | *** | ![]() | US | PPI |
14/06/2022 | 1255/0855 | ** | ![]() | US | Redbook Retail Sales Index |
14/06/2022 | 1400/1000 | ** | ![]() | US | IBD/TIPP Optimism Index |
14/06/2022 | 1530/1130 | ** | ![]() | US | US Treasury Auction Result for 52 Week Bill |
14/06/2022 | 1700/1900 | ![]() | EU | ECB Schnabel on Euro Bond Market Fragmentation |
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.