Cash Bonds Twist-Flatten, Hike Fears Pressure Short-End, Tokyo CPI Tomorrow

JGB futures are slightly weaker, -3 compared to the settlement levels, but at Tokyo session highs.

• Outside of the previously outlined PPI Services and International Investment Flow data, there hasn't been much in the way of domestic data drivers to flag.
• Accordingly, the rally in longer-dated JGBs appears to have been driven by equity and USDJPY weakness. Recent moves have added more evidence to the argument that carry-trade dynamics that dominated much of this year's currency trade are starting to reverse.
• Cash US tsys are 1-4bps richer, with a steepening bias, in today’s Asia-Pac session after yesterday’s twist-steepening.
• However, JGB yields out the 5-year remain higher following the Reuters report that the BoJ was set to consider a hike at next week’s meeting in addition to providing a plan to taper bond buying. Benchmark yields are 2bps higher to 3bp lower.
• The benchmark 10-year yield is 0.8bp lower at 1.073% versus the cycle high of 1.108%.
• Swaps are dealing mixed across maturities, with 1- and 40-year rates ~1bp higher and 10- to 30-year rates ~2bps lower. Swap spreads are mixed.
• Tomorrow, the local calendar will see Tokyo CPI data, Leading & Coincident Indices and 2-year supply.