Futures Give Up Overnight Gains After Q2 GDP Much Stronger Than Forecast

JGB futures are weaker, -7 compared to settlement levels, having given up overnight gains after Q2 GDP (preliminary) surprises significantly on the upside.

• Q2 preliminary GDP rose a stronger-than-expected 1.5% q/q (6% saar) to be up 2.1% y/y following 0.9% and 1.9% in Q1. This is the strongest quarterly increase since the Covid-affected Q4 2020. The strength was driven by export growth of 3.2% q/q driven by autos, which resulted in net exports contributing 1.8pp to growth. Rising numbers of inbound travellers, whose contribution is also factored into the net exports component of GDP, provided a big economic boost after authorities lifted border controls at the end of April. (See link)
• Cash JGBs are cheaper across the curve, led by the benchmark 7-10-year zone. The 10-year yield is 1.3bp higher at 0.625%, above BoJ's YCC old limit of 0.50% but below its new hard limit of 1.0%.
• The benchmark 5-year JGB is outperforming on the curve, showing no concession, ahead of today’s supply. The 5-year yield is 0.2bp higher at 0.202%.
• Swap rates are higher across the curve, led by the belly, with swap spreads mixed.