Futures have moved sharply lower since the.....>

JGBS: Futures have moved sharply lower since the re-open, on the back of the

broader risk-on flows stemming from the SCMP headline re: the top Chinese trade

envoy visiting the U.S, with the lead contract erasing all of the overnight &

early session gains, to trade 2 ticks softer on the day at writing. The Nikkei

225 has unwound a chunk of its losses, but still trades 2.2% weaker. Cash trade

has seen the longer end continue to outperform, with yields holding lower, even

as yields to 10-Years move into positive territory on the session.

- This was aided by the latest 30-Year JGB auction, which saw the cover ratio

hold up & the price tail hold relatively steady despite 20-Year paper looking a

little more attractive than based on ASW & z-spread perspectives, 20-Year paper

also offers a more attractive carry & roll proposition. The recent domestic

lifer/pension fund asset allocation plans indicated a willingness to buy 30-Year

JGBs if yields reach 1%. The sector's yields have become competitive with French

10-Year OATs on an FX hedged basis for Japanese investors, although the huge

funds have indicated a willingness to pursue larger uncovered bond holdings.

- Focus now moves to tomorrow's Japanese GDP release.