Cheaper Out To 10Y, 5Y Climate Transition Supply Due

In Tokyo morning trade, JGB futures are dealing sharply weaker, -36 compared to settlement levels.

• Japan's June trade figures showed weaker-than-expected export and import growth. Exports were +5.4% y/y, against a +7.2% forecast and +13.5% prior outcome. Imports were +3.2%y/y, against a +9.6% forecast, which was also close to the prior outcome. The headline trade position was better than expected at ¥224bn, (-¥185.7bn forecast). The seasonally adjusted trade deficit of -¥816.8bn was close to expectations.
• (Bloomberg) The cost of hedging US high-grade bonds for Japanese investors dropped 30 basis points in July as earlier-than-anticipated rate cuts from the Federal Reserve were priced into the market, according to Bank of America.
• A “firming outlook for Fed rate cuts means an earlier decline in FX hedging for foreign investors, particularly in Japan,” BofA strategists led by Yuri Seliger wrote in a note Wednesday. (See link)
• Cash US tsys are ~1bp cheaper in today’s Asia-Pac session after yesterday’s modest bear flattener.
• Cash JGBs are ~2bp cheaper out to the 10-year and little changed beyond. The benchmark 10-year yield is 2.2bps higher at 1.063% versus the cycle high of 1.108%.
• The swaps curve has bear-steepened, with rates 2-4bps higher. Swap spreads are wider.
• 5-year Climate Transition supply due.