Futures Holding Overnight Losses In Early Tokyo Trade, 2Y Supply Due

In Tokyo morning trade, JGB futures are holding the overnight losses, -10 compared to settlement levels.

• Foreign investors were chunky sellers of local bonds last week, -¥2025.1bn in outflows. This more than offsets the net inflows seen in the prior 3 weeks. Japan's outbound flows were much more modest in an absolute sense. Local investors sold -¥544.4bn of offshore bonds.
• Cash JGBs are cheaper across benchmarks, with yields 0.5bp (5-year) to 1.4bps (30-year) higher. The benchmark 10-year yield is 1.4bps higher at 0.749%, 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 September BOJ decision.
• The 2-year JGB yield is 0.8bps higher at 0.035%, ahead of today's supply. Today's auction occurs amidst more positive demand indicators for recent 5-, 20-, and 40-year JGB offerings. This suggests that current outright yields might finally be offering suitable compensation for both BOJ uncertainties and uncertainties within the bond market.
• (Bloomberg) There is a “certain degree” of concern about demand for Thursday’s auction of 2-year Japanese government debt amid a trend of rising yields in the US, according to Mitsubishi UFJ Kokusai Asset Management. (See link)
• The swaps curve has bear-steepened, with rates 0.3bp to 2.0bps higher. Swap spreads are generally slightly wider.