Bull-Flattener Post-30Y Auction

JGB futures richer and just off session highs, +32 compared to the settlement levels.

• The market responded positively to strong demand metrics at today’s 30-year auction. The low price beat dealer expectations, the cover ratio increased and the auction tail narrowed. The 30-year JGB is dealing 6bps lower in post-auction trade.
• Like Tuesday's 10-year supply, today's outcome established a more optimistic tone ahead of next week’s BoJ monetary policy decision for a market that has experienced mounting pressure since mid-December, fueled by expectations of policy tightening from the BoJ.
• BoJ Governor Ueda stated in Parliament that price expectations must be around 2% to meet the price target, but current inflation expectations are still below 2%. He emphasised the need for caution on interest rates due to uncertainties in measuring the neutral rate and suggested that it is appropriate to reduce bond buying as part of the exit process.
• Cash US tsys are 1-2bps cheaper in today’s Asia-Pac session.
• The cash JGB curve has bull-flattened, with yields 2-9bps lower. The benchmark 10-year yield is 5.3bps lower at 0.963% versus the cycle high of 1.101% set late last week.
• Swap rates are lower across maturities, with the 4-7-year zone outperforming.
• Tomorrow, the local calendar will see Household Spending data, and Coincident and Leading Indices alongside BoJ Rinban Operation covering 1-3-year and 5-25-year JGBs.