Flatter, Futures Back From Best Levels

JGB futures initially nudged higher during Tokyo dealing, briefly unwinding overnight losses, before softening a touch later in the day. The contract last deals -6 vs. Thursday’s settlement.

• The early Tokyo dynamic of long end outperformance (Although 30s and 40s are now less than 0.5bp richer on the session), 7-Year underperformance and a light twist flattening of the curve remains intact, with the relative steepness of the JGB curve likely resulting in support for longer dated JGBs after the turn of the Japanese FY.
• Spill over from a weaker JPY may have provided some incremental support for the space, with little in the way of fundamental drivers observed when it comes to FX trade.
• The previously outlined PBoC inaction (when it came to today’s MLF operations) and run-of-the-mill FX- & BoJ-related commentary from the Japanese policymaking sphere have done little to generate meaningful activity in the JGB space.