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Cash Curve Bull-Flattener, PM Kishida To Exit, US CPI Due

JGBS

JGB futures are sharply richer and at session highs, +29 compared to settlement levels, despite a poor showing at today’s 5-year auction.

  • The auction's low price failed to beat dealer expectations, and the cover ratio declined to 3.5109x from 4.256x at July’s auction. The auction tail was also longer. Today’s auction followed a disappointing 10-year JGB auction in August.
  • The results were likely affected by a bid that faced a lower yield, coupled with a 2/5 curve that was flatter than the July auction and is now near the lower end of its range since December 2022.
  • PM Kishida will not run in the ruling Liberal Democratic Party’s leadership election in September. JGB yields initially rose on the news but have subsequently reversed the move.
  • Cash US tsys are flat to 1bp cheaper in today's Asia-Pac session ahead of US CPI data later today.
  • The cash JGB curve has bull-flattened, with yields flat to 4bps lower. The benchmark 10-year yield is 3.0bps lower at 0.817% versus the cycle high of 1.108%.
  • The swaps curve has also bull-flattened, with rates 1-3bps lower. Swap spreads are mostly tighter.
  • Tomorrow, the local calendar will see Q2 GDP, and June Capacity Utilisation and Industrial Production data alongside BoJ Rinban Operations covering 1-3-year and 5-25-year+ JGBs.

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