Futures Back At Overnight Lows, Opening a Solid Gap With The Recent High

JGB futures move back to overnight lows in early Tokyo trade, -10 versus settlement levels.

• Weekly investment flow data for the week of May 19 showed strong foreign inflows into Japan bonds, ¥1105.7bn, similar to last week's pace of ¥1075.3bn. Japan residents' buying of offshore bonds was also firm, coming in at ¥964.7bn, only slightly down on the prior week's pace.
• JGB futures corrected lower on Tuesday, opening a solid gap with resistance at 149.17, the recent high. Nonetheless, the strong recovery in JGB futures from 147.27, the Apr 18 low, confirms the corrective nature of the recent pullback, according to MNI’s technical team. This keeps medium-term attention on 149.53, the March 22 high and the bull trigger.
• Cash JGBs are trading mixed in early Tokyo trade with yield movements ranging from -0.9bp lower (40-year) to 1.1bp higher (7-year). The benchmark 10-year yield is 0.6bp higher at 0.420%, below the BoJ's YCC limit of 0.50%.
• The 40-year zone is outperforming with its yield at 1.435% ahead of supply today. The sale of 40-year debt is expected to go smoothly supported by life insurers’ plans to increase holdings of domestic bonds this fiscal year. Results are due at 0435 BST/1235 JST.
• The swaps curve bear steepens with swap spreads wider beyond the 1-year zone.