Futures Lead Cheapening Move As Tokyo Plays Catch Up

JGB futures ticked back towards early Tokyo lows as the morning wore on, with the impulse derived from movements in wider core global FI markets over the previous 36 hours driving price action after the Tokyo holiday.

• We didn’t get anything in the way of meaningful domestic headline flow to hamper the cheapening impulse, although a light bid in U.S. Tsys (outlined elsewhere) may have limited the weakness to some degree.
• JGB futures hit the lunch bell -70 after failing to retest their early session lows, while cash JGBs were 1-9p cheaper, with 7s leading the weakness owing to the moves in futures.
• Swap rates pushed higher as the morning wore on, which probably aided the second-round weakness in JGBs, with swap spreads wider at every point outside of 7s, where the spill over from the move in futures has resulted in some spread narrowing.
• When it comes to the technical outlook for futures, the Mar 2 high at 147.07 has been broken (and then some), working against the over-arching downtrend. Any resumption of weakness would expose next support at the Jan 13 low (144.15).