10-Year JGBs Outperform On The Curve Post-Auction

JGB futures have exhibited strength, gaining +19 compared to settlement levels, as they have fully recovered from the weakness observed at the Tokyo lunch break. The afternoon session in the JGB market witnessed a notable strengthening, sparked by robust demand witnessed at today's auction of 10-year JGBs. Spillover buying after the RBA left its cash rate unchanged also looks to have been in play.

• The 10-year auction surpassed broader expectations, with the low-price exceeding forecasts, the cover ratio reaching a four-month high of 4.024x, and the tail narrowing to its lowest level in four months.
• The relative cheapness of 10-year JGBs compared to futures (7-year maturity), is likely to have contributed to the demand observed at today's auction. Furthermore, the auction's demand was likely supported by recent downside surprises in Tokyo inflation data.
• The release of the June monetary base data, as anticipated, did not have a significant impact on the market, and there have been limited domestic factors to highlight.
• Cash JGBs yields are lower across the curve in the Tokyo afternoon session, with the 10-year zone leading (1.8bp lower at 0.386%).
• Swap rates are also lower across the curve with swap spreads generally wider.
• Tomorrow the local calendar sees the Jibun Bank PMI Services and Composite data along with BoJ Rinban operations covering 1-5-year and 10-25-year JGBs.