Futures Extend Weakness Seen Ahead Of Weekend, Take Out Friday Session Low

JGB futures extend overnight weakness seen ahead of the weekend in early Tokyo trade to 146.74, -64 compared to settlement levels, pushing through the low (146.79) set in the aftermath of the BoJ’s surprising YCC tweak on Friday.

• June industrial production rose 2% from last month versus +2.4% m/m estimate. Retail sales fell 0.4% in June from a month earlier, compared to the median estimate of -0.7%.
• JGBs corrected lower on the back of the BoJ rate decision, slipping to new pullback lows of 146.79. According to MNI’s technicals team, this brings key support at the 146.11 low into view on the continuation contract - last printed back in February. The previous buy-on-dips theme appears to have paused, but any return higher will initially target the May 12 high of 149.21. Clearance of these levels would highlight an important break.
• The cash JGB curve has bear steepened with yields 0.6bp (1-year) to 5.4bp (20-year) higher in early Tokyo trade as the market still grapples with Friday’s surprise decision to tweak YCC. The benchmark 10-year yield is 4.3bp higher at 0.611%. The Bank will offer to purchase 10y JGBs at 1.0%, instead of 0.50%, every business day through fixed-rate purchase operations.
• The swap curve also bear steepens with swap spreads generally wider apart from the 5-7-year zone.