Futures Mid-Range, Belly Of Curve Underperforming

In the Tokyo afternoon session, JGB futures are sitting mid-range, -13 compared to the settlement levels.

• The local calendar has been light today, with Leading and Coincident Indices for August (final) due soon.
• Today’s weakness has been unexpected given it flew in the face of lower US tsy yields during Tuesday’s NY session. That said, afternoon weakness is consistent with the cheapening in longer-dated cash US tsys, which are dealing 1-2bps cheaper across benchmarks beyond the 5-year in Asia-Pac trade.
• One possible explanation for today’s move comes from Cranfield at Bloomberg. He believes the fact that JGBs are still biased lower despite an unscheduled buying operation and support for the belly of the curve via 5-year loans could be adding to bets for abandoning yield curve control at next week’s policy meeting. (See linkICYMI)
• Cash JGBs are dealing mixed, with the belly underperforming. Yield movements 1.6bps lower to 0.7bp higher. The benchmark 10-year yield is at 0.858% versus the cycle high of 0.882% set on Monday.
• The swap curve is also trading mixed, with rates 2bp lower to 0.6bp higher. Swap spreads are mixed.
• Tomorrow, the local calendar sees PPI Services, International Investment Flows and Machine Tool Orders data.
• The MOF will conduct a Liquidity Enhancement Auction for 15.5-39-year JGBs at 1700 JT.