Futures Lead Space Higher On Breach Of Recent High

JGB futures shunted higher during the Tokyo morning, extending on their overnight bid, last +36.

• The move came as Japanese Finance Minister Suzuki reaffirmed the independence of the BoJ, while he flagged the need to monitor the downside risks that inflation poses to the Japanese economy. This wasn’t particularly new news, but the language deployed may have supported the space. Elsewhere, Chief Cabinet Secretary Matsuno highlighted the need to monitor downside risks to the economy.
• A break through the 7 July high for futures may provide a better explanation of the shunt higher, introducing a technical element to the bid, with the fact that 7s represent the joint-firmest point on the curve pointing to a futures driven move for JGBs on the whole (wider cash JGBs are flat to 3.5bp richer on the session)
• Elsewhere, weekly international security flow data pointed to the continued covering of short JGB positions by foreign investors.
• The latest liquidity enhancement auction covering off-the-run 5-15.5 Year JGBs saw firm pricing, with spreads firming vs. the previous auction (likely linked to demand for the CtD bond of JBU2 futures, as we flagged in our auction preview), while the spread tail narrowed a little. Elsewhere, the cover ratio came in at 3.66x, sharply lower vs. the high print observed in the last auction (6.15x), with short covering already well underway in the space after June’s BoJ meeting/defence of YCC (likely limiting wider demand at today’s auction). Note that this metric was below the six-auction average of 4.40x.
• Looking ahead, BoJ Rinban operations covering 1- to 25-Year JGBs headline the domestic docket on Monday.