Futures At Session Lows, Through Key Support, 20-Year Supply Tomorrow

In the Tokyo afternoon session, JGB futures are sitting just off the Tokyo session’s worst levels at 147.27, -47 compared to the settlement levels. The session low so far has been 147.23. This comes despite PPI and Core Machine Orders data undershooting expectations.

• According to the MNI technicals team, a breach of 147.34 signals a deeper reversal and opens 146.11, the Feb 22 low.
• As reported by Bloomberg (ICYMI), the decline in JGB futures, coupled with the absence of any official statements from Japanese authorities, is intensifying speculation about a potential policy adjustment from the BoJ this month. Although the BoJ has not provided any hints, some traders are preparing for a larger JGB short position that could gain momentum and continue to grow once policy-tightening measures are eventually implemented. (See link)
• The cash JGB curve, beyond the 1-year zone, has bear steepened in the Tokyo afternoon session with the futures linked 7-year zone underperforming (3.8bp cheaper). The benchmark 10-year yield is 1.3bp higher at 0.472%, below the BoJ's YCC limit of 0.50%.
• The 20-year benchmark is 1.9bp cheaper at 1.093%, ahead of tomorrow’s supply.
• Swap rates are higher beyond the 1-year with the curve steeper. Swap spreads are wider beyond the 2-year.
• Tomorrow the local calendar sees International Investment Flow (Jul 7) along with 20-year supply.