Futures Holding In Negative Territory, 40Y Supply Due

At the Tokyo lunch break, JGB futures are holding weaker, -23 compared to the settlement levels.

• There hasn’t been much in the way of domestic drivers to flag, outside of the previously outlined PPI Services.
• Cash JGBs are cheaper across the curve, with yields 0.4bp (4-5-year) to 1.2bps (futures-linked 7-year) higher. The benchmark 10-year yield is 0.8bp higher at 0.744%, above BoJ's YCC soft limit of 0.50% but below its hard limit of 1.0%. It is also lower than the cycle high of 0.756%, set prior to the BOJ decision on Friday.
• The 40-year JGB yield is 0.4bp higher at 1.854%, ahead of today’s supply. It's important to note that the current 40-year auction is taking place with the outright yield significantly higher by approximately 35bps compared to the late July offering. Today's 40-year auction is also significant as it's the first one following the BOJ's adjustment to the YCC framework on July 27th. It also comes in the wake of the BOJ’s ‘dovish hold’ on Friday.
• The swaps curve has shifted higher, with rates 0.1bp to 0.6bps higher. Swap spreads are tighter across maturities.