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Futures Sharply Weaker, 20Y Supply Due

JGBS

In post-Tokyo trade, JGB futures are sharply weaker, closing -20 compared to settlement levels, after US tsys finished 3-5bps cheaper ahead of Thursday's PPI and Retail Sales data. The US 2-year yield was up 5bps at 4.63% while the 10-year yield rose 4bps to 4.19%. Trading was cautious ahead of 30-year supply, but the auction attracted decent demand with bid-cover the highest since June.

  • A stronger-than-expected retail report could further dent hopes, and dampen market sentiment, for a mid-June rate pivot by the Federal Reserve.
  • Projected rate cut pricing over the next three FOMC meetings continues to evaporate: March 2024 chance of a 25bp rate cut is currently at 1.5%; May 2024 at a cumulative 12% and June 2024 at a cumulative 59%.
  • Focus in Japan will remain on next week's BoJ meeting. BBG noted the bank is considering scrapping ETF buying but maintaining bond purchases (headlines crossed late yesterday, see this link).
  • Nikkei also reported that the BoJ will discuss ending NIRP at next week's meeting (see this link).
  • Today, the local calendar sees weekly International Investment Flow data, along with 20-year supply.

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