Futures moved sharply lower in afternoon.......>

JGBS: Futures moved sharply lower in afternoon trade (albeit in a tight range),

on the back of the broader risk-on flows stemming from the SCMP headline re: the

top Chinese trade envoy visiting the U.S, with the lead contract briefly erasing

all of the overnight & early session gains, last 5 ticks lower. The Nikkei 225

unwound a chunk of its losses, but still traded 2.0% weaker on the day.

- Cash trade saw the longer end continue to outperform, with 20+-Year yields

holding lower, even as shorter dated tenors turned positive on the day.

- This was a result of the latest 30-Year JGB auction, which saw the cover ratio

hold up & the price tail hold relatively steady despite 20-Year paper looking a

little more attractive than based on ASW & z-spread perspectives, 20-Year paper

also offers a more attractive carry & roll proposition. The recent domestic

lifer/pension fund asset allocation plans indicated a willingness to buy 30-Year

JGBs if yields reach 1%. The sector's yields have become competitive with French

10-Year OATs on an FX hedged basis for Japanese investors, although the huge

funds have indicated a willingness to pursue larger uncovered bond holdings.

- Focus now moves to tomorrow's Japanese GDP release.