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Futures Pare Morning Weakness But 40Y Supply Goes Poorly


In the Tokyo afternoon, JGB futures pare morning weakness, unchanged versus settlement levels, despite the 40-year supply being poorly digested.

  • There hasn’t been much in the way of domestic drivers to flag. Tomorrow the local calendar sees PPI Services (Jun) along with Coincident and Leading Indices (May F).
  • Cash JGBs are dealing mixed with yield changes bounded by -0.5bp (5-year) and +1.1bp (40-year). The benchmark 10-year yield is 0.1bp higher at 0.464%, below BoJ's YCC limit of 0.50%.
  • The market's response to the supply of 40-year bonds was disappointing, as the high yield exceeded dealer expectations, which had projected a yield of 1.445% based on the BBG poll. The cover ratio increased versus the previous outing but it is worth noting that the cover ratio observed in late May was the lowest seen at a 40-year auction since November 2022. The subdued demand seen today might be a reflection of uncertainty surrounding policy outcomes at the BoJ's policy meeting scheduled for Friday. The 40-year yield is dealing at 1.497%, around 3bp cheaper in post-auction trade.
  • The swaps curve twist steepens, pivoting at the 3-year, with rates 0.3bp lower to 3.8bp higher. Swap spreads are wider across the curve.
  • Tomorrow will see Rinban operations covering 3- to 25-Year+ JGBs.

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