Curve Twist Steepens, Futures Bid

JGB futures have held on to their morning bid, last printing +26, with the early uptick holding. Wider cash JGBs run 2.5bp richer to 1.5bp cheaper across the curve. 7s lead the rally in paper out to 20s, outperforming on the back of the bid in futures, while the curve has pivoted around 30s.

• A reminder that weakness in domestic equities and the wider defensive flows observed since Monday’s Tokyo close seemed to be the major supportive factors for the space throughout the session, although the super-long end softened as we moved through the day.
• The most notable round of domestic headline flow came from Finance Minister Suzuki, who seemingly showed greater outward worry re: the recent run of JPY weakness, at least when compared to previous communique on the matter. Suzuki is currently meeting with his U.S> counterpart, Yellen.
• A firm round of 5-Year supply would have helped the wider bid, as it saw the low price top wider dealer expectations (which stood at 99.81, per the BBG dealer pol), while the tail vanished as the cover ratio moved away from the multi-year low that was observed at the prior 5-Year auction, topping the 6-auction average (3.37x) in the process. The recent cheapening vs. swaps and allure of new paper likely facilitated demand.
• BoJ Rinban operations headline the domestic docket on Wednesday.