Futures At Session Lows At Lunch, Fresh Cycle High For 10Y Yield

At the Tokyo lunch break, JGB futures are at session lows, -28 compared to the settlement levels.

• JGB futures sold off sharply Tuesday, putting the contract further through support at 145.49, the Aug 17 low, according to MNI's technical team. A continuation lower and the clear break of this area confirmed a resumption of the medium-term downtrend. It also paved the way for weakness towards 144.15, the Jan 13 low and major support. On the upside, clearance of 146.41, the Sep 4 high would instead highlight a base and a possible short-term reversal.
• There hasn’t been much in the way of domestic drivers to flag, outside of the previously outlined trade balance and international investment low data.
• Accordingly, local participants have likely sought guidance from US tsys. So far in Asia-Pac dealings, US tsys have extended weakness in yesterday’s NY session. Cash US tsys are 1-4bps cheaper in recent trading.
• Cash JGBs are cheaper, with the belly of the curve underperforming led by the futures-linked 7-year (2.1bps cheaper). The benchmark 10-year yield is 1.8bps higher at 0.827%, above BOJ's YCC soft limit of 0.50% but below its hard limit of 1.0%. It is also a fresh cycle high.
• Swap rates are higher, with the belly also underperforming. Swap spreads are tighter out to the 7-year and mixed beyond.