Futures Holding Just In Positive Territory At lunch Ahead Of 5Y Supply

At the Tokyo lunch break, JGB futures remain richer, +8 compared to settlement levels, but have pared overnight gains despite the PPI data offering few surprises.

• There hasn’t been much in the way of domestic drivers to flag, outside of the previously outlined Nov PPI data, which came close to expectations. The print is unlikely to shift BOJ thinking ahead of next week's policy meeting.
• According to MNI’s technicals team, JGB futures slid sharply Friday, refuting the recent bullish bias and returning prices back to support. 143.44, the Oct 31 low, mark key support and a medium-term bear trigger.
• Finance Minister Shunichi Suzuki says the government needs to work properly toward the end of the year to avoid any delays in tax reform and budget processes. (See Bloomberg link)
• Cash JGBs are slightly mixed, with the futures-linked 7-year as the underperformer (+1.8bps).
• Ahead of today’s supply results, the 5-year is 0.4bp higher at 0.349%, outperforming the curve. This auction follows a decent 5-year auction in November but comes on the heels of poor digestion at December’s 10- and 30-year JGB supply and November’s 2-year auction. It's worth noting that the cover ratio was the lowest for a 2-year auction since 2009.
• The swap curve has a slight bear-steepening, with swap spreads generally wider.