Futures At Session Highs, PPI Misses

In Tokyo morning trade, JGB futures have extended overnight gains, +32 compared to settlement levels, after this morning’s domestic data drop.

• Japan data has been printed for PPI, machine orders and bank lending. Most focus is likely to rest on the September PPI, which came in weaker than expected. In m/m terms it fell 0.3% versus a +0.1% forecast and +0.3% prior. This left y/y momentum at +2.0% versus +2.4% forecast and +3.3% prior.
• August core machine orders were down 0.5% m/m (against a 0.6% forecast rise). In y/y terms, it fell -7.7% against a -6.7% forecast. The data is up from recent cyclical lows but only modestly. Bank lending trends for September were similar to August, +2.9% y/y.
• The cash JGB curve has bull-flattened beyond the 1-year (+0.9bp), with yields 0.3bp to 3.9bps lower. The benchmark 10-year yield is 1.3bps lower at 0.756%, above BOJ's YCC soft limit of 0.50% but below its hard limit of 1.0%. It is also lower than the cycle high of 0.814% set late last week.
• The swaps curve has also bull-flattened, with rates 0.3bp to 2.9bps lower. Swap spreads are tighter out the 10-year and wider beyond.