Futures At Cheaps At Lunch, Linker Supply Results Due

At the Tokyo lunch break, JGB futures have weakened, reaching session lows and currently standing at -12 compared to the settlement levels.

• There hasn’t been much in the way of domestic drivers to flag, outside of the previously outlined May Preliminary Jibun Bank Services and Manufacturing PMI which printed higher.
• Accordingly, local participants are likely on headlines and US tsys watch. US tsys have twist flattened in Asia-Pac trade with yields -1bp to +1bp.
• Cash JGBs are mixed across the curve with yields +0.7bp to -1.5bp. The 40-year zone is the strongest performer with its yield 1.5bp lower ahead of the scheduled supply on Thursday. The benchmark 10-year yield is 0.4bp lower at 0.386%, well below the BoJ's YCC limit of 0.50%. The 1-year and 7-year zones are the weakest with yields +0.7bp.
• Tomorrow will see BoJ Rinban operations covering 1- to 25-Year JGBs.
• Swap rates are higher with the 4-10-year zone showing the largest lift of 0.9bp. Swap spreads are wider across the curve, beyond the 1-year zone.
• Results of the MoF's sale of Y250bn of 10-year index-linked JGBs are due at 0435 BST/1235 JST. Bloomberg reports that Mitsubishi UFJ Morgan Stanley Securities expects the supply to be absorbed smoothly given the debt is a new issue and the linker market is undervalued.