Futures Extend Overnight Losses in Early Tokyo Trade, Annual PPI Beats

In early Tokyo trading, JGB futures extend overnight losses, -27 compared to settlement levels, after July PPI data surprises on the upside in annual terms with a print of +3.6% versus expectations of +3.5% and an upwardly revised +4.3% prior. However, the monthly change was lower than expected at +0.1% m/m versus +0.2% expected.

• Additionally, weekly international investment flow data showed offshore investors were large sellers of Japan bonds, -¥1966, which was the biggest outflow since mid-January of this year. This comes amid renewed upside pressure in JGB yields, although in recent sessions, sentiment has stabilised somewhat (10yr JGB yield back sub 0.60%). In terms of Japan's outbound flows, foreign purchases of offshore bonds picked up (¥438.8bn).
• The cash JGB curve has bear steepened with yields 0.3-2.4bp higher. The benchmark 10-year yield is 0.4bp higher at 0.588%, above BoJ's YCC old limit of 0.50% but below its new hard limit of 1.0%.
• The swaps curve has also bear steepened. Swap spreads are wider apart from the 40-year.
• Trading may prove subdued today ahead of US CPI data later today. See the MNI CPI preview here. Fedspeak from SF Fed President Daly and Atlanta Fed President Bostic also crosses. There is also the latest 30-year supply.