Futures Downtick At Lunch, 40-Year Outperforming Ahead Of Auction Results

At the Tokyo lunch break, JGB futures are holding a downtick, reaching a session low of 148.47 and currently standing at 148.54, -7 compared to the settlement levels.

• There have been limited domestic factors to highlight, apart from weekly investment flow data from the week of May 19, which revealed substantial foreign inflows into Japanese bonds.
• As a result, local market participants have likely been closely monitoring headlines leading up to the issuance of 40-year JGBs. Interestingly, the 40-year bond segment is outperforming on the yield curve, exhibiting no signs of concession, with its yield standing at 1.435%. Results are due at 0435 BST/1235 JST.
• Tsys have been pressured after the US Tsy released a statement noting that the Fitch report shows the swift need for bipartisan action. They also said that brinkmanship over the debt limit does serious harm to business, raises short-term borrowing costs and threatens the credit rating of the US. This leaves cash tsys flat to 3bps cheaper, the curve has bear flattened.
• Cash JGBs are trading mixed at the Tokyo lunch break with yield movements ranging from -1.0bp lower (40-year) to 0.9bp higher (1-year). The benchmark 10-year yield is 0.4bp higher at 0.418%, below the BoJ's YCC limit of 0.50%.
• The swaps curve bear steepens with swap spreads wider beyond the 1-year zone.