Futures Stabilise After Early Downtick, Curve Twist Steepens, Swap Spreads Widen

JGB futures stabilised as the morning wore on, owing to the pullback from best levels in e-minis and weakness in Chinese property developer names in early equity trade, leaving the contract +6 at the Tokyo lunch bell after feedthrough from Friday/early Monday price action in S&P 500 futures applied some pressure around the open.

• The wider cash JGB curve has twist steepened, with European banking worry, hope surrounding the potential for further U.S. policymaker support for U.S. banks and the aforementioned equity weakness for Chinese property developer names at the forefront of participants’ minds. The major cash JGBs run 3bp richer to 1bp cheaper, as 10s outperform on the curve and 40s present the only cheaper benchmark point.
• Swap rates are off session highs but still firmer on the day, with swap spreads holding wider across the curve.
• Local headline flow remains somewhat limited.
• Note that the 10-/40-Year JGB curve is on course to steepen for a third consecutive session, with the presence of tomorrow’s 40-Year JGB supply likely aiding that dynamic.