Futures Reverse Higher In Afternoon Trading, Cash Curve Twist Flattens

JGB futures are firmer in afternoon trade, +13 compared to settlement levels, after trading in negative territory in the morning session.

• There hasn’t been much in the way of domestic drivers to flag, outside of the previously outlined June PPI data that surprised on the downside. While the data generated little initial market reaction, afternoon strength is consistent with the message embedded in the data. That being, the pace of gains in Japan’s service prices for businesses slowed in June by the most since October 2020. Service prices are seen by economists as an indication of how price gains are spreading in the wider economy. (See link)
• The leading and coincident indices (final for May) will print soon.
• The cash JGB curve has twist flattened in the Tokyo afternoon session, pivoting at the 3-year zone with yields ranging from 0.5bp higher (2-year) to 1.7bp lower (20-year). The benchmark 10-year yield is 0.7bp lower at 0.459%.
• The swap curve has swung from a bear steepening in the morning session to a bull flattening after the lunch break. Swap spreads are narrower across the curve after being wider in the morning.
• Tomorrow the local calendar sees International Investment flow data (Jul 21) ahead of Tokyo CPI and the BoJ Policy Meeting on Friday.
• Tomorrow also sees the MoF sell Y2.9tn 2-year JGBs.