Futures Cheaper & At Session Lows At Lunch, 5Y Supply Due

At the Tokyo lunch break, JGB futures are cheaper and just off the session’s worst level, -21 compared to settlement levels. JBH4 had closed the overnight session with a downtick.

• There hasn’t been much in the way of domestic drivers to flag, outside of the previously outlined December PPI print that surprised on the high side of expectations.
• In addition to the PPI’s impact, JGBs have likely been pressured by cash tsys, which have opened dealing 5-6bps cheaper across benchmarks in today’s Asia-Pac session after the observance of the Martin Luther King public holiday yesterday.
• Cash JGBs are cheaper across the curve, with the 20-year underperforming (+1.6bps). The benchmark 10-year yield is 0.6bp higher at 0.576% versus yesterday’s low of 0.556%.
• The 5-year yield is unchanged at 0.173%, outperforming on the curve, ahead of today’s supply. The current 5-year auction is taking place with an outright yield at its lowest level since late July. The 2/5 curve is also around 10bps flatter than at the December auction.
• Today's auction comes on the heels of suboptimal results at January’s 10- and 30-year JGB supply.
• Swaps curve has bear-steepened, with rates 1-3bps higher. Swap spreads are wider.