Fierce Moves In Long End Around 40-Year Supply

JGB futures gave back their limited overnight gains at the Tokyo re-open, but have recovered a little into the Tokyo close as the longer end of the curve firms, last dealing +8

• The curve steepened in a relatively aggressive manner ahead of 40-Year JGB supply, with pre-auction concession combining with what seemed to be limited liquidity further out the curve, weighing on 10+-Year paper. The auction went well, allowing the curve to rebound from session steeps as the long end recovered from extremes. Benchmark cash JGBs run 1bp cheaper to 4bp richer as a result, twist flattening, with 30s and 40s now richer on the day, firming notably post-auction in directional dealing.
• In terms of auction specifics, the cover ratio printed above the 6-auction average, with the high yield over 2.0bp below wider dealer expectations (as proxied by the BBG dealer poll). The auction benefitted from the supportive conditions we outlined in our auction preview, which included yields operating just off cycle cheaps, the steepness of the JGB curve, the Japanese investor base’s aversion when it comes to adding to international debt holdings (as seen in Japanese weekly international security flow data) and the preference of domestic life insurers to accumulate super-long JGB holdings (per their semi-annual investment intention interviews).
• Services PPI data met expectations, ticking up to 2.0% in Y/Y terms while the stale minutes from the BoJ’s June meeting was inconsequential for markets, as expected.
• There isn’t much of note on tomorrow’s domestic docket.