Cash Curve Bear Flattens As BoJ Is Said To Consider A Hike Next Week

In Tokyo morning trade, JGB futures are weaker, -23 compared to settlement levels, but above the low set early in the Tokyo session.

• Japan's services producer price index rose 3.0% y/y in June, accelerating from May's revised 2.7% and marking the highest level since March 2015, showing corporate pass-through of cost increases continued steadily.
• Offshore investors returned to being net sellers in the bond space last week. This has been the general trend in recent months and fits with gradual BoJ tightening, which is improving onshore yields but pushing bond prices lower. In terms of Japan outflows to the rest of the world, local investors were net sellers of offshore bonds, which has been the general theme in recent months.
• Cash US tsys are 1-2bps richer in today’s Asia-Pac session after yesterday’s twist-steepening.
• The cash JGB curve has bear-flattened, with yields flat to 2bps higher after Reuters reported that a BoJ hike will be considered next week.
• The benchmark 10-year yield is 1.1bps higher at 1.092% versus the cycle high of 1.108%.
• Swap rates are little changed out to the 30-year and +3bps beyond. Swap spreads are tighter apart from the 40-year.