Futures Higher But Off Best Levels, 30Y Auction Weighs

In afternoon trade, JGB futures are richer but off the session highs, +16 compared to settlement levels, after 30-year supply showed mixed demand metrics, with the low price failing to meet dealer expectations but the cover ratio increasing to 3.003x from 2.616x in December. It is noteworthy that December’s cover was the lowest level seen at a 30-year auction since 2015. The auction tail was also shorter compared to December's auction, which had recorded the longest tail in history. The 30-year yield is ~1bp higher in post-auction dealings.

• There wasn’t much in the way of domestic data drivers to flag, outside of the previously outlined current account balance, bank lending and weekly international investment flow data.
• Cash US tsys are trading flat to 2bps higher, with a flattening bias, most likely in response to higher oil prices after US and UK airstrikes hit Houthi rebel targets in Yemen.
• After yesterday’s US CPI data, which was more-or-less in line with expectations, the market now awaits PPI data later today. Fed Kashkari also speaks about economic conditions.
• Cash JGBs are richer out to the 10-year, with the futures-linked 7-year as the best performer (-1.3bps). The benchmark 10-year yield has declined by 1.0bp, settling at 0.593%.
• Swaps curve has maintained its bull-flattening out to the 20-year, with rates 0.5bp to 1.3bps lower.