Flattening Holds, Futures Off Best Levels

Thursday’s Tokyo session has been a bit of a catch-up exercise for JGBs.

• That leaves the major cash benchmarks running little changed to 9bp richer, as the curve flattens in lieu of Wednesday’s BoE action.
• Note that 10s haven’t really moved away from the upper limit of the BoJ’s permitted trading band, with participants seemingly willing to keep the pressure on the BAnk.
• Futures have faded a touch in the afternoon, but are still +23 on the day.
• MoF data revealed that last week saw international investors lodge the largest round of net weekly sales of Japanese bonds since mid-June, building on the theme of recent times i.e. offshore participants driving the challenge of the BoJ.
• The latest 2-Year JGB auction went well. Takedown was likely aided by the recent move to multi-month cheaps in outright terms, international investor demand stemming from FX-hedged yield pickup and the BoE’s well-documented Wednesday action, which has allowed core global FI markets to stabilise, for now.
• There hasn’t been much in the way of meaningful domestic news flow, outside of continued speculation surrounding potential forms of support for households re: energy prices and schemes to generate inbound tourism for Japan.
• Looking ahead, labour market data, industrial production, retail sales and the latest round of BoJ Rinban operations headline domestically on Friday.