Futures Sharply Lower & Near Lows At Lunch, 10Y Auction Due

At the Tokyo lunch break, JGB futures have continued to cheapen, -140 compared to the settlement levels.

• Outside of the previously outlined cash earnings data, there hasn't been much in the way of domestic drivers to flag
• According to MNI’s technicals team, JGB futures continue to trade in a volatile manner. The latest sharp rally has confirmed a bullish reversal and, in the process, cleared a number of important resistance points. A continuation higher would pave the way for a climb towards 147.74, the Jan 15 high and a bull trigger. Any exhaustion of this bullish move would see momentum shift lower, initially targeting 143.57, the Jul 17 high. This would likely be a correction.
• Cash US tsys are 3-5bps cheaper in today’s Asia-Pac session, extending the reversal in the direction seen yesterday.
• The cash JGB curve has sharply bear-steepened, with yields 1-17bps higher. The benchmark 10-year yield is 12bps higher at 0.912% ahead of today’s supply.
• The current 10-year auction is taking place with an outright yield around 25bps lower than the July auction, following a significant decline over the past week due to global recessionary concerns.
• However, the 2/10 yield curve is approximately 15bps flatter than it was during the July auction after the recent risk-induced flattening.
• The swaps curve has also bear-steepened, with rates 1-10bps higher. Swap spreads are tighter.