Firmer, With Long End Leading The Way

JGB futures added to overnight session gains during the Tokyo afternoon after a fairly limited round of morning trade saw the contract consolidate its overnight advance, last dealing +23 on the session, a touch shy of best levels.

• Cash JGBs are 0.5-3.5bp richer on the day, flattening, while 7s outperform surrounding tenors on the bid in futures.
• There wasn’t much in the way of actionable domestic headline flow to latch on to, which left the spill over from Monday’s richening in U.S. Tsys (and subsequent, modest richening in Asia-Pac hours) at the fore.
• The latest round of 5-Year JGB supply received lukewarm demand, with the low price missing wider dealer expectations. The price tail remained narrow (having widened a little from a tail of zero at the previous auction), while the cover ratio eased to 3.40x from the previous auction’s 3.92x, coming in a little below the six-auction average of 3.46x. As flagged in our preview, the lack of meaningful outright and relative value for 5s likely contributed to reduced demand at today’s auction.
• Looking ahead, monthly trade balance data and core machine orders are due Wednesday, in addition to the latest round of BoJ Rinban operations.