Futures Rally Overnight, Inflation Data Headlines

JGB futures latched on to the previously outlined rally in core global FI markets during overnight trade, although a pullback from best levels was observed, as futures mimicked U.S. Tsys. That left the contract +26 at the close of post-Tokyo trade.

• Note that exchange data revealed that foreign investors registered the largest weekly round of net sales of JGB futures since mid-January last week. This comes after yesterday’s weekly international security flow data revealed that foreign investors sold a record amount of Japanese bonds last week, as the market tested the BoJ’s resolve when it comes to enforcing the upper limit of its permitted 10-Year JGB yield trading band. Note that subsequent open interest data and price action points to short in futures exiting as the BoJ undertook “creative” action to defend the upper limit of the aforementioned band, purchasing CtDs.
• Market fragmentation/functioning worries remain at the fore for investors.
• May’s inflation data headlines domestic matters today, with the CPI readings already released, holding at steady rates in Y/Y terms and matching wider expectations. Services PPI is also expected to hold steady in Y/Y terms.
• Elsewhere, we will hear from BoJ Deputy Governor Amamiya.