Cash Bonds Shunts Lower With A Flattening Of the Curve

In Tokyo morning trade, JGB futures are extremely strong after extending overnight strength, +73 compared to settlement levels.

• According to MNI’s technical team, JGB futures underwent volatile trade Wednesday after the BoJ decision, but recouped lost ground ahead of the Fed. The price action across Thursday & Friday last week snaps the losing streak off the mid-July highs and eyes the 50-dma resistance above at 143.07. Clearance here would shift the near-term outlook more positively, and eye 143.57 as the next key level. Last week’s lows of 142.42 mark first support.
• (Bloomberg) “The chances are very high for an October rate hike,” Kazuo Momma, the former director, told Bloomberg on Thursday. “The BOJ’s policy reaction function has changed now. This means of course that there’s also a chance of another hike in January.” (See link)
• Cash US tsys are 2-3bps richer in today’s Asia-Pac session, after yesterday’s strong gains following weaker-than-expected ISM Mfg and initial jobless claims.
• The cash JGB curve has bull-flattened, with yields 3-9bps lower. The benchmark 10-year yield is 7.6bps lower at 0.965% versus the cycle high of 1.108%.
• The swaps curve has also bull-flattened, with rates 2-4bps lower. Swap spreads are wider.