Curve Twist Steepens

JGB futures chipped away at their overnight losses during the Tokyo session and now sit 6 ticks below yesterday’s settlement level, over 30 ticks off their overnight low, although trading conditions remain impaired.

• There wasn’t much in the way of local news to digest after the re-open (PM Kishida & Finance Minister Suzuki offered little in the way of meaningful rhetoric), with cross-market impetus helping futures to pare some of its overnight losses during the morning
• Cash JGBs out to 20s are generally within 0.5bp of yesterday’s closing levels, trading on the richer side, although the broader cheapening observed in the global fixed income space on Monday has seemingly facilitated ~1.5bp of cheapening for 30s and 40s, with some twist steepening in play on the curve as a result.
• The exception to rule for paper out to 20s is 5s, with outperformance there (equating to 1.5bp of richening) aided by 5-Year JGB supply, which was absorbed smoothly enough. The low price of the auction matched broader estimates (as proxied by the BBG dealer poll), while the price tail saw a very modest widening, although remained tight in the grander scheme of things. Things were a little softer on the cover ratio side, with the bid/cover moving to the lowest level observed at a 5-Year JGB auction since the COVID-induced vol. of early ’20 (likely on the well-documented market functioning issues).
• Wednesday’s local docket will be headline by the latest round of BoJ Rinban operations.