Futures Pare Overnight Losses In Early Tokyo Trade, 2-Year Supply Due

JGB futures are weaker, -15 compared to settlement levels, but have pared overnight losses ahead of today’s 2-year auction.

• Offshore investors were also sharp sellers of local bonds, with -¥1204.2 in outflows. This was the largest weekly outflow since the end of March. Recent trends were maintained in terms of Japan's flows to the rest of the world. Local investors were larger sellers of offshore bonds last week (-¥973.8bn).
• Cash JGBs are dealing slightly mixed in early Tokyo trade with yield changes bounded by -1.1bp (30-year) and +0.6bp (2-year and 7-year). The benchmark 10-year yield is 0.4bp lower. higher at 0.459%, below the BoJ's YCC limit of 0.50%.
• The 2-year is underperforming on the curve at -0.036% ahead of today’s auction. Today’s supply comes after last month’s 2-year auction saw the highest cover ratio since September despite a richening in the outright yield. At the time, the receding possibility of a near-term BoJ policy adjustment appeared to support the bid. This time, the outright yield is higher, but uncertainty surrounding the BoJ policy outlook has increased.
• The swaps curve has twist flattened, pivoting at the 10-year, with rates 0.2bp higher to 0.4bp. Swap spreads are little changed.