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Futures At Cheaps After A Relatively Poor 10-year JGB Auction

JGBS

JGB futures hit session lows in afternoon trade, currently -27 versus settlement levels. This drop followed a relatively poor showing in the 10-year JGB supply, which had a cover ratio of 3.60x. This ratio represents the lowest level observed at a 10-year JGB auction since August 2022.

  • Expectations of a near-term tweak to YCC over the coming months due to growing inflationary pressures look to have capped demand. To that end, Governor Ueda’s comments in Parliament today regarding encouraging trends in inflation and a willingness to end YCC once the 2% inflation target is reached in a stable and sustainable manner are likely to have weighed on the auction result.
  • Despite today’s cheapening, JBM3 is still positioned within a range of 147.92 (the upper limit of April's trading range) and 149.53 (the high point of March 22), currently trading at 148.39. According to MNI's technical analyst, if JBM3 surpasses the March 22 high, it would signal a continuation of the upward trend.
  • Lower-than-expected prints for March Household Spending, Labour Cash Earnings and Real Cash Earnings failed to provide meaningful support for the market.
  • Cash JGBs are cheaper in afternoon trade led by the 7-20-year zone with the 10-year yield 1.1bp higher at 0.429%. Only the 40-year zone sees its yield lower (-0.6bp).
  • Swap rates are higher across the curve with wider swap spreads, apart from the 1-year and 20-year zones.
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