Futures Recover While Long End Struggles

JGB futures unwound their overnight losses as the Tokyo session wore on, with the impetus from the broader bid in core global FI markets surrounding the previously outlined COVID worries in China (more localised restrictions & guidance in some of the big cities, in addition to the deaths of 3 elderly Beijing citizens over the weekend, some of whom had complex health conditions) and an average to low round of offer/cover ratios in BoJ Rinban operations covering 1- to 25-Year JGBs lending support.

• That left JGB futures +2 ahead of the bell, although the long end struggled to catch a bid after the early weakness That was perhaps linked to catch-up to Friday’s weakness in U.S. Tsys, leaving the major cash JGB benchmarks flat to 4bp cheaper at the bell, as the curve steepened.
• Local headlined flow was dominated by continued headwinds for PM Kishida, who lost a cabinet member to a resignation surrounding campaign financing irregularities.
• Looking ahead, a liquidity enhancement auction for off-the-run 1- to 5-Year JGBs will headline on Tuesday, ahead of Wednesday’s national holiday & resultant JGB market closure.