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Futures Holding Higher, Solid 2yr Auction, BoJ Next Week

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JGB futures are holding positive, but have been unable to breach the 143.00 handle. We were last 142.88 for JBU4, +.14 versus settlement levels.

  • This leaves us towards the upper end of the trading range for the past few sessions.
  • We had a solid 2yr auction result earlier. The bid to cover was 4.19, versus the prior 3.83, while the tail was 0.007 compared to 0.008 prior.
  • Earlier the July Tokyo CPI update was mixed. Headline and the core ex fresh food trend remained above 2% y/y but core-core, which also excludes energy fell to 1.5%. Still, if history is a guide this core-core measure should follow the other headline metrics firmer in coming months.
  • In the cash JGB space, we are mostly lower in yield terms, particularly towards the back end of the curve, off a little over 2bps for the 20-40yr tenors. The 10yr JGB yield remains under 1.06%. The 10yr swap rate is off 2bps to sub 0.98%.
  • Looking ahead, next week's BoJ meeting outcome (on Wednesday) will be the key focus point. The broader consensus rests with no change at this stage, although reports this week (including from Reuters) have suggested the central bank is still considering a rate hike. The other focus point will be central bank's planned reduction in bond purchases.
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JGB futures are holding positive, but have been unable to breach the 143.00 handle. We were last 142.88 for JBU4, +.14 versus settlement levels.

  • This leaves us towards the upper end of the trading range for the past few sessions.
  • We had a solid 2yr auction result earlier. The bid to cover was 4.19, versus the prior 3.83, while the tail was 0.007 compared to 0.008 prior.
  • Earlier the July Tokyo CPI update was mixed. Headline and the core ex fresh food trend remained above 2% y/y but core-core, which also excludes energy fell to 1.5%. Still, if history is a guide this core-core measure should follow the other headline metrics firmer in coming months.
  • In the cash JGB space, we are mostly lower in yield terms, particularly towards the back end of the curve, off a little over 2bps for the 20-40yr tenors. The 10yr JGB yield remains under 1.06%. The 10yr swap rate is off 2bps to sub 0.98%.
  • Looking ahead, next week's BoJ meeting outcome (on Wednesday) will be the key focus point. The broader consensus rests with no change at this stage, although reports this week (including from Reuters) have suggested the central bank is still considering a rate hike. The other focus point will be central bank's planned reduction in bond purchases.