Futures Give Back Chunk Of Overnight Gains, Curve Twist Steepens

The early afternoon session impulse from the bid in U.S. Tsys subsided as U.S. fixed income consolidated a little off richest levels of the day, allowing JGB futures to drift lower, printing fresh Tokyo session lows in the process, before regaining some poise into the bell.

• That left the contract +20 ahead of the close, paring around half of the FOMC-inspired overnight session gains. The wider JGB curve has twist steepened, with the 7- to 10-Year zone outperforming on the move in futures since yesterday’s settlement, while 40s are the only major benchmark to sit cheaper on the day, as the major cash JGBs run 3bp richer to 1bp cheaper.
• Swap rates have also ticked away from session lows, in sympathy with the moves in JGB yields. Swap spreads are mixed across the curve.
• Local headline flow was essentially non-existent.
• The latest liquidity enhancement auction covering off-the-run 5- to 15.5-Year JGBs saw spreads print comfortably through prevailing market levels, although the cover ratio moderated a touch. This suggests that those that needed access to the line (maybe with short covering requirements) were willing to “pay up” to guarantee their access, while the recent richening left other prospective bidders on the sidelines.
• Looking ahead, national CPI and flash Jibun Bank PMI data will cross on Friday.