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Futures Soften Late In The Day, Curve Steeper, 20s Lead Weakness

JGBS

JGB futures have come under pressure ahead of the bell, with nothing in the way of an overt catalyst apparent, as the contract hits fresh session lows in recent dealing, last -18 on the day. The move comes as 20s cheapen in cash JGB trade, while 30s and 40s outperformed 20s in the wake of a relatively solid round of 40-Year JGB supply. The major cash JGB benchmarks run 0.5-3.0bp cheaper across the curve.

  • This comes after a firmer Nikkei 225 resulted in the bear steepening of the JGB curve during early Tokyo dealing, while the paring of the Nikkei’s early gains failed to provide any meaningful support for the space.
  • In terms of auction specifics, 40-Year JGB supply saw the cover ratio tick away from the multi-year low observed at the previous 40-Year auction (although it still held below its 6-auction average of 2.53x), while the high yield is lower than wider expectations evident ahead of the auction (which stood at 1.085%). The steep domestic yield curve (in both domestic and international terms) and short-term stability in government bond markets, coupled with the fact that 40-Year yields are near cycle highs, seemingly enticed bidders, as we suggested may be the case in our auction preview.
  • Elsewhere, last week’s international security flow data revealed that foreign investors were net buyers of Japanese bonds for a second consecutive week, registering the largest round of net weekly purchases seen since March. FX hedging cost-related yield pickup and the BoJ’s continued insistence that it will stick with its current policy settings likely facilitated the bid.
  • Tokyo CPI data headlines the domestic docket on Friday.
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JGB futures have come under pressure ahead of the bell, with nothing in the way of an overt catalyst apparent, as the contract hits fresh session lows in recent dealing, last -18 on the day. The move comes as 20s cheapen in cash JGB trade, while 30s and 40s outperformed 20s in the wake of a relatively solid round of 40-Year JGB supply. The major cash JGB benchmarks run 0.5-3.0bp cheaper across the curve.

  • This comes after a firmer Nikkei 225 resulted in the bear steepening of the JGB curve during early Tokyo dealing, while the paring of the Nikkei’s early gains failed to provide any meaningful support for the space.
  • In terms of auction specifics, 40-Year JGB supply saw the cover ratio tick away from the multi-year low observed at the previous 40-Year auction (although it still held below its 6-auction average of 2.53x), while the high yield is lower than wider expectations evident ahead of the auction (which stood at 1.085%). The steep domestic yield curve (in both domestic and international terms) and short-term stability in government bond markets, coupled with the fact that 40-Year yields are near cycle highs, seemingly enticed bidders, as we suggested may be the case in our auction preview.
  • Elsewhere, last week’s international security flow data revealed that foreign investors were net buyers of Japanese bonds for a second consecutive week, registering the largest round of net weekly purchases seen since March. FX hedging cost-related yield pickup and the BoJ’s continued insistence that it will stick with its current policy settings likely facilitated the bid.
  • Tokyo CPI data headlines the domestic docket on Friday.