Back To Flattening

JGB futures hit the lunchbreak +20 vs. yesterday’s settlement levels, backing away from their overnight peak as U.S. Tsys cheapened at the margin, hitting the bell +20 vs. yesterday’s settlement levels. Note that Tsys have edged away from lows in recent dealing, which may provide some incremental support for JGBs after the Tokyo re-open, although the Tsy moves are small.

• JGBs have reverted to flattening after yesterday’s steepening, with the space benefitting from Thursday’s recession worry driven bid in U.S. Tsys. The major cash JGB benchmarks run 1.0-2.5bp richer on the session, with 40s providing the firmest point on the curve and 7s outperforming surrounding tenors on the back of the bid in futures.
• Note that swap spreads are wider across the curve, with the swap curve twist steepening, pivoting around the 7- to 10-Year zone. Longer dated JGBs have managed to look through payside flows in their swap equivalents, with longer dared swap rates 1-2bp higher on the session.
• On top of the previously flagged modest upside surprise across the Tokyo CPI data suite and non-descript labour market report, domestic retail sales data provided a miss, while prelim industrial production data provided a beat.
• BoJ Rinban operations saw the following offer/cover rations:
• 3- to 5-Year: 3.22x (prev. 2.86x)
• 5- to 10-Year: 2.04x (prev. 1.52x)
• 25+-Year: 3.44x (prev. 2.46x)
• This may provide some incremental pressure in early afternoon trade, although we don’t expect much in the way of meaningful impact from these results.