Curve Twist Flattens, 20-Year Supply Goes Smoothly

JGB futures are -4 ahead of the bell, with the contract sticking comfortably within the confines of its overnight session range.

• Cash JGBs twist flattened, in sympathy with post-CPI U.S. Tsy trade, pivoting around the 10- to 20-Year zone, with the major benchmarks running 1.5bp cheaper to 1.5bp richer across the curve (a similar move was observed in swaps, although the net changes were more modest there).
• Domestic headline flow has seen a continued uptick in worry re: FX market moves amongst senior Japanese policymakers
• Elsewhere, foreign investors registered the largest round of net weekly purchases of Japanese bonds observed since July of last year. We would suggest that this largely represents continued short covering in JGBs (third straight week of net purchases) after the BoJ reinforced the upper end of its permitted 10-Year JGB yield trading band in June (with foreign investors willing to test the BoJ’s resolve at that time).
• In terms of 20-Year supply, the low price observed at the 20-Year auction topped wider dealer expectations (which stood at 99.80 per the wider BBG dealer poll), with the tail narrowing a touch and cover ratio moving further above the 6-auction average. The tail width means that the auction wasn’t overly strong, but it was easily digested, with the previously outlined curve steepness and home bias of the Japanese bond investor community likely supporting takedown.