Futures Remain Stronger But 10YY Higher After Weak Demand Seen At Today’s Auction

JGB futures are holding sharply stronger, +30 compared to settlement levels, but are off the session's best level.

• In addition to the previously outlined international investment flow and monetary base data, the key domestic event today was the latest 10-year supply. The 10-year JGB auction saw mixed demand metrics, with the low price meeting wider but the tail lengthening, and the cover ratio printing the second lowest level seen at a 10-year auction since Aug’22.
• Interestingly, the simultaneous occurrence of a cycle high in the outright yield, a steep 2/10 yield curve, and the relative cheapness of 10-year JGBs versus futures with a 7-year maturity hasn't been sufficient to alleviate investor concerns regarding the BOJ's newly introduced flexible YCC framework.
• The cash JGB curve has maintained its bull-flattening, beyond the 1-year, in the afternoon session, with yields 1.2bp to 3.4bps lower. The benchmark 10-year yield is 3.4bps lower at 0.927% versus yesterday’s cycle high of 0.974% and the BOJ's 1% YCC reference rate. The 10-year is around 1.5bps higher in post-auction dealings.
• The swaps curve has also bull-flattened, with swap spreads wider out to the 20-year and tighter beyond.
• Tomorrow, the local market is closed for the Culture Day holiday.