Futures Little Changed, FOMC Decision Digested Ahead Of 10Y Supply

In Tokyo morning trade, JGB futures have swung into positive territory, +1 compared to settlement levels, after the overnight downtick as local participants digested the FOMC decision and Fed Chair Powell’s press conference. This comes despite a slight paring of yesterday’s rally in US tsys in today’s Asia-Pac session. Cash US tsys are dealing 1-2bps cheaper, with a slight flattening bias.

• On the local data front, offshore flows into Japanese bonds returned to net outflows last week, ending a positive 2-week run of inflows into this space. In terms of Japan outflows to the rest of the world, we saw a ¥382.9bn rebound to offshore bonds, which have generally been on a positive trend since the start of the year (3 out of 4 weeks with positive inflows).
• Meanwhile, Jibun Bank and S&P Global release of January’s Mfg PMI showed a rise to 48 from 47.9 in December.
• Cash JGBs are slightly cheaper across benchmarks, with the 40-year (+1.3bps) leading. The benchmark 10-year yield is 0.9bp higher at 0.741% ahead of today’s supply. Bloomberg reported that SMBC Nikko Securities thinks investor demand for bonds will remain subdued as a BoJ rate hike is approaching.
• The swaps curve has bear-steepened, with rates flat to 3bps higher. Swap spreads are wider.