Bull-Flattening At Lunch Ahead Of 10Y Supply

At the Tokyo lunch break, JGB futures are richer, +20 compared to the settlement levels, and at session highs ahead of today’s 10-year supply.

• There hasn’t been much in the way of domestic drivers to flag, outside of the previously outlined November labour and real cash earnings, which printed much weaker than expected.
• The cash JGB curve has bull-flattened, with yields 1-3bps lower. The benchmark 10-year yield is 1.9bps lower at 0.572% versus the Nov-Dec rally low of 0.555%.
• Today’s 10-year supply follows last month’s auction, which presented poor demand metrics. The low price failed to meet wider expectations, the tail lengthened, and the cover ratio declined to 2.823x from 3.622x at November’s auction. It is worth noting that December’s cover was the lowest seen at a 10-year auction since 2021.
• It is also notable that outright 10-year yield is approximately 10bps lower than the early December offering, with the 2/10 yield curve 5bps flatter.
• Swaps curve has also bull-flattened, with swap spreads wider.