Curve Steeper, Futures Not Challenging Recent Base

Futures print -63 heading towards the Tokyo close, with the bulk of the movement coming during the early rounds of Tokyo trade.

• Last week’s low (147.94) in the contract wasn’t tested and continues to provide initial technical support.
• Cash JGB trade saw the major benchmarks run 1.0-7.0bp cheaper, with 10-Year yields being capped by the upper limit of the BoJ’s YCC mechanism (promoting curve steepening).
• Wider FI market weakness pressured JGBs after Tokyo returned from a long weekend.
• 20s and 40s have registered fresh cycle highs (in yield terms) on the move.
• Familiar language was deployed by Japanese Finance Minister Suzuki, which failed to impact JPY, as you would expect.
• Offer/cover levels remain contained in the BoJ’s 1- to 10-Year Rinban operations, even with 10-Year yields challenging the upper limit of the BoJ’s YCC, suggesting a lack of meaningful desire to test the BoJ’s will at present.
• BoJ Governor Kuroda will speak shortly, but we don’t expect much new, owing to the proximity to last week’s monetary policy decision & subsequent press conference.
• Further out, 40-Year JGB supply headlines domestic matters tomorrow, with services PPI & machine tool orders data also due.