US treasury yields are higher set against the backdrop of heavy corporate supply. Currency markets subdued. Nikkei225 at record high. Eyes on China’s National People’s Congress

US equity indices are little changed with investors looking ahead to key economic indicators and comments from Fed officials, including Chair Powell’s testimony before the House Financial Services Committee, later in the week. In Japan, the Nikkei 225 increased 0.5% and traded above the psychological 40,000 level for the first time. The Nikkei is the best performing major stock index in 2024, having gained 20% in local currency terms, and 13% in US dollar terms. This compares with an 8% rise in the S&P.

US treasury yields moved higher, partially reversing the rally after the soft manufacturing ISM, at the end of last week. 2-year yields advanced 7bps to 4.61%. 10-year yields increased 4bps to 4.22% as the market digests heavy US investment grade supply. Issuers are looking to take advantage of calm markets ahead of a likely pickup in volatility later in the week. European bond markets were little changed with 10-year gilts yields up 2bps to 4.12% while 10-year bunds closed at 2.39%, only 5bps below the 2024 yield highs.

After record issuance volumes for the month of February, the US corporate bond market is preparing for another heavy month of supply with tight spreads - credit spreads are close to the tightest since January 2022 - and strong investor demand following the back up in yields. Investment grade supply is expected to total US$130 billion in March. Borrowers are looking to get ahead of 2024 funding tasks with the economy expected to slow and the US election later in the year.

The annual meeting of China’s National People’s Congress begins today. Investors will be looking for policy priorities and indications on fiscal stimulus. The government is expected to maintain its growth target at 5%. A reduced target would temper hopes for additional policy measures to support growth and weigh on China sensitive assets. Chinese equities have rebounded from the slump during January. The Hang Seng China Enterprises index has gained more than 15% from the lows.

There was subdued activity across currency markets. The dollar index (DXY) was little changed despite higher treasury yields. The DXY has broadly traded sideways over the past 2 weeks, since reversing off the 2024 highs, in mid-February. The euro and the pound outperformed within the G10. EUR/JPY has traded higher and looks set to retest the 2024 high near 163.70.

There was limited directional bias for NZD/USD which was confined to a narrow range overnight. The NZD was stable against the AUD near 0.9350. NZD/GBP dipped towards 0.4800 which corresponds with a series of lows through February.

NZGB yields moved ~2bps lower in a parallel curve shift in the local session yesterday. 10-year government bonds closed at 4.74%. The swaps curve flattened modestly with the 2-year rates unchanged while 10-year rates fell 3bps. Australian bond futures are little changed since the local close yesterday suggesting limited directional bias for NZ yields on the open.

There is no domestic data out today. In Japan, Tokyo CPI for February will jump higher as energy subsidies roll out. The US ISM services index is expected maintain levels near 53 after the sharp gain in January.