Futures Holding Stronger, Range Bound Tokyo Session Despite Solid Demand For 20Y Supply

JGB futures are richer, +22 compared to settlement levels, but have pared their gains in the Tokyo afternoon session. This comes despite today’s 20-year supply showing stronger demand.

• As mentioned in our preview, today's auction likely benefited from factors such as a higher outright yield, a steeper 10/20 yield curve, and the 20-year bond becoming relatively cheaper in relation to the 10/20/30-year butterfly. The allure of a new bond issue might have also played a role.
• Bloomberg reports that 10-year OIS, popular with international funds, have climbed well beyond the central bank’s ceiling for equivalent yields. That’s a sign that at least some market players think the BOJ may choose to reshape its policy of holding down 10-year yields. (See link)
• Cash JGBs exhibit a mixed performance along the yield curve, with the futures-linked 7-year zone, outperforming (1.3bp richer), while the 40-year zone underperforms (1.5bp cheaper).
• The 20-year zone is 0.8bp richer, after richening around 3bp in early post-auction trade.
• The swaps curve twist steepened, pivoting at the 20-year. Swap spreads are tighter across the curve, apart from the 7-year.
• Tomorrow the local calendar sees Industrial Production and Capacity Utilisation data for May along with BoJ Rinban operations covering 1-10-year and 25-Year+ JGBs.