20s Struggle In Wake Of Poorly Received Supply

JGB futures consolidated their overnight losses in Tokyo dealing, with the cash space playing catch up to the post-Tokyo weakness, which was linked to the latest news wire source reports surrounding the potential for a BoJ policy framework review in the post-Kuroda era (that we have documented elsewhere).

• There was a soft reception for the latest round of 20-Year JGB supply, which saw the low price, and indeed the average price, miss wider dealer expectations, with the cover ratio nudging further below the 6-auction average.
• A combination of spill over from the core global FI price action during the Tokyo lunch break and the weak auction details applied pressure to JGB futures in early afternoon trade, although the overnight lows in futures were not tested on the move. 20s cheapened on the curve.
• The space then regained some poise into the close, leaving futures -20 at the bell, while cash JGBs were little changed to 4bp cheaper, with 20s providing the weakest point, both pre- and post-supply.
• In domestic news flow we saw continued rumours surrounding tax tweaks to fund Japan’s increased defence spending, but this was inconsequential for markets, with the broader tax category alterations already highlighted by policymakers.
• Looking ahead, Friday’s local docket will be headlined by flash PMI readings.