Futures Cheaper But Above Worst Levels, 10Y Auction Sees Mixed Results

JGB futures are sitting just above session lows, -12 compared to settlement levels.

• In addition to July household spending that printed weaker than expected, the key domestic driver for the local market today was the auction of 10-year JGBs.
• The 10-year supply saw higher demand (the cover ratio lifted to 4.019x from 3.636x previously), but the low price failed to meet wider expectations and the tail lengthened to the longest since April. In short, it appears as though local investors will need a higher yield and/or more time to assess the new YCC framework and the BoJ policy outlook before significantly lifting allocations to the JGB market.
• Outside the domestic drivers, local participants have likely been on headlines and US tsys watch. Cash US tsys sit ~3bps cheaper across the major benchmarks. Narrow ranges have been observed in Asia today, as cash US tsys re-opened after yesterday's Labor Day holiday.
• Cash JGBs are cheaper across the curve, with yields 0.1bp (1-2-year) to 1.2bp (5- and 20-year) higher. The benchmark 10-year yield is 1.0bp higher at 0.654%.
• The swap curve has twist steepened, with rates 0.1bp lower to 0.8bp higher. Swap spreads are tighter across the curve.
• Tomorrow the local calendar is light, with a speech from BoJ Board Member Nakagawa as the highlight.