Futures and 30Y JGBs Cheaper After Poor 30Y Supply Digestion, GDP & Labor Earning Tomorrow

JGB futures unwind early afternoon strength to be -1 compared to settlement levels.

• JGB futures and 30-year JGBs initially gained value in early post-auction trading but later relinquished those gains. This reversal aligned with the lacklustre reception for 30-year supply today. The low price fell short of dealer expectations and the cover ratio was lower than the previous month. Notably, the auction tail was the longest observed since April 2020, excluding the July auction.
• Today’s result was consistent with other recent JGB auctions and appears to suggest that local investors seek higher yields and/or more time to assess the new YCC framework and the BoJ's policy outlook before significantly increasing their allocations to the JGB market.
• Cash JGBs are mixed, with yields 1.1bp higher (20-year) to 0.9bp lower (40-year). The benchmark 10-year yield is unchanged at 0.660%, above BoJ's YCC old limit of 0.50% but below its new hard limit of 1.0%.
• The 30-year JGB yield is 0.2bp lower on the day at 1.653%, 1bp higher than pre-auction levels.
• Swap rates are also mixed, pricing 0.1bp lower to 1.4bp higher. Swap spreads are wider beyond the 3-year.
• Tomorrow the local calendar sees Labor Cash Earnings (Jul), GDP (Q2 F), BoP (Jul) and Bank Lending (Aug), along with BoJ Rinban operations covering 1- to 25-year JGBs.