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[MARKET ANALYSIS] USTs are incrementally firmer, JGBs lag on hawkish BoJ reports

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EU Retail Sales MoM (Apr) M/M -0.4% vs. Exp. -0.3% (Prev. -0.1%, Low. -0.5%, High. 0.4%)

EU Retail Sales YoY (Apr) Y/Y 1.0% (Prev. 1.2%)

[MARKET ANALYSIS] USTs are incrementally firmer, JGBs lag on hawkish BoJ reports

[MARKET ANALYSIS] USD modestly weaker to the benefit of G10s; JPY sees further BoJ sources, CHF digests CPI data

[MARKET ANALYSIS] Crude softens as efforts for a US-Iran deal continue

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  • Global fixed benchmarks are mixed as energy prices cool a touch after President Trump said Iran negotiations are going well, while he suggested a deal could happen over the weekend. Though noted that it could go another two or three weeks. Separately, reports suggest that Israel and Lebanon agreed to a ceasefire, though recent reports have suggested that the Israeli army is continuing its operations in the region. This uncertainty has led to the tentative action across fixed paper this morning.
  • USTs (+1+ ticks) are slightly firmer and trade within a narrow 109-12+ to 109-18 range. Really not much driving the action this morning aside from geopolitics, but domestic data will likely garner some attention later. To recap, ISM Manufacturing & Services indicate a solid activity picture, with labour market reports (ADP/JOLTS) also pushing back on near-term rate cut expectations. Ahead, focus will be on: US Challenger Layoffs (May), Jobless Claims (May/30), Revelio PLS (May), and Chicago Fed Labor Market Indicators Final (May).
  • From a yield perspective, the short end is underperforming a touch; the 10y is also coming off recent highs and resides just shy of the key 4.50% mark, last at 4.48%.
  • JGBs (-20 ticks) are on the back foot this morning for two key reasons: a) hawkish BoJ reports, b) an enhanced-liquidity auction. Delving into the report, Bloomberg first reported that the BoJ is mulling a hike in June, and potentially one more this year. Moreover, a source said that the Bank sees less need to pare back its bond purchasing plans. This was later corroborated by a Reuters piece, where a source said, “Unless there's a severe escalation in the conflict, the BOJ will probably hike rates in June”. Before the sources piece, markets already expected the Bank to hike in June; therefore, the pressure in JGBs this morning stems from comments related to the plans later in the year.
  • Bunds and Gilts follow the tentative action seen in USTs, but are lower by a handful of ticks. Domestic updates for EZ have been lacking this morning, but traders will eye Retail Sales. Irrespective of the report, the ECB is set to hike at the June meeting – money markets assign a 96% chance of such a decision; another hike is then priced in for October.

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