Futures Firm Overnight, But Pare Gains

JGB futures squeezed higher in overnight trading as Monday’s Tokyo bid in JGBs seemingly catalysed short covering from international investors ahead of tomorrow’s BoJ decision. This came after the expeditious cheapening seen last week. The contract finished post-Tokyo dealing +18, around its after-hours mid-point, experiencing rangy, two-way trade.

• Note that some flagged evidence of futures basis trades on Monday (buying futures and selling cash equivalents), which would make sense given the recent widening in the basis between the two. Adding further credence to this idea is the fact that the amount of JGBs borrowed from the BoJ hit a record level, nearing Y8tn, providing an access avenue for shorts in cash JGBs.
• Domestic headline flow has been light.
• Pre-BoJ gyrations will continue to dominate on Tuesday, with a liquidity enhancement auction covering off-the-run 5- to 15.5-Year JGBs providing the most notable point on the local docket.