Bull-Flattening Maintained Despite Poor 10Y Auction Result

JGB futures are only slightly richer, +7 compared to the settlement levels, after giving up early gains in post-10-year supply dealings.

• There wasn't much in the way of domestic drivers to flag, outside of the previously outlined weaker-than-expected November labour and real cash earnings in morning trading. As a result, JGB futures drifted higher, hitting their session high at the lunch break.
• The 10-year auction however showed poor demand metrics once again. The low price failed to meet wider expectations, the tail lengthened, and the cover ratio only improved slightly to 2.904x from 2.823x at December’s auction. It is worth noting that December’s cover was the lowest seen at a 10-year auction since 2021.
• Nevertheless, the cash JGB curve has maintained its bull-flattening, with yields flat to 3bps lower. The benchmark 10-year yield is 0.8bps lower at 0.583% after a morning low of 0.564%.
• Cash US tsys are dealing flat to 1bp lower, with a steepening bias, so far today. In large part, the recent performance of US tsys is best seen as a holding pattern ahead of US CPI/PPI data on Thursday/Friday.
• Swaps curve has also bull-flattened, with swap spreads tighter out to the 5-year and wider beyond.
• Tomorrow, the local calendar is relatively light, with Tokyo Avg Office Vacancies and Leading & Coincident Indices as the highlights.