Futures Off Session Lows After Stronger Than Expected Demand At 5Y Auction

In Tokyo afternoon trade, JGB futures have moved off session lows, -2 compared to the settlement levels, after 5-year supply saw better than expected demand. All the auction’s metrics were solid, with the low price beating dealer expectations, the cover ratio of 4.415x showing a notable increase from the 3.346x recorded in August and the tail shortening.

• There hasn’t been much in the way of domestic drivers to flag, with the economic data calendar empty.
• Bloomberg reports that Japan’s bond market is increasingly pricing in the prospects for an end to the central bank’s negative interest-rate policy, boosting short-term borrowing costs. The nation’s OIS suggest the BoJ will end the negative rate policy in January, compared with September 2024 seen after the last policy meeting in July, based on data compiled by Bloomberg. (See link)
• Cash JGBs are mixed across the curve, with yields 1.3bp lower (5-year) to 1.2bp higher (2-year).
• The benchmark 10-year yield is 0.2bp higher at 0.711%, after reaching a post-YCC tweak high of 0.722%.
• Swap rates are 0.4bp to 1.1bp higher across the curve, with the belly underperforming. Swap spreads are wider beyond the 2-year.
• Tomorrow the local calendar sees PPI (Aug) and BSI Large Industry (Q3) data, along with BoJ Rinban operations covering 1-3-year, 5-10-year and 25-year+ JGBs.