Bull-Flattening Unwound After Poor 20Y Auction

JGB futures are +15 position compared to settlement levels in afternoon dealings, having scaled back their post-FOMC gains after a disappointing 20-year auction. The outcome revealed a low-price print that fell short of dealer expectations, a reduced cover ratio compared to last month’s auction, and a considerably extended tail.

• There hasn’t been much in the way of domestic data drivers to flag, outside of the previously outlined weekly international investment flows and core machine orders. The recently released final read of IP for October showed +1.3% y/y versus 1.0% prior.
• The pronounced decline in JGB performance during the afternoon session occurred despite the extension of yesterday’s post-FOMC rally in cash US tsys into today’s Asia-Pac session. At the time of writing, cash tsys were dealing off session highs but 3-5bps richer, with the curve steeper. Local participants are likely digesting the clearest signal yet that the Fed has finished its aggressive monetary-tightening campaign, by forecasting a series of rate cuts next year. The yield on 10-year has fallen below 4% for the first time since August.
• Cash JGBs are dealing mixed, with yield movements bounded by +/-2bps. The benchmark 10-year yield is 0.8bp lower at 0.686%. The 20-year is 0.2bp lower on the day but 7bps above the session’s low.
• Tomorrow, the local calendar sees Flash Jibun Bank Japan PMI and Tertiary Industry Index data.