Futures Stronger Despite A Poor 10Y Auction

JGB futures are higher, +5 compared to settlement levels, after holding a small loss at the lunch break. This shift into positive territory surprisingly coincided with news that today’s 10-year supply saw lacklustre demand metrics. The low price failed to meet wider expectations, the tail lengthened, and the cover ratio declined to the lowest level seen at a 10-year auction since 2021.

• Demand seems to have faced a setback due to an outright yield that was approximately 20bps lower, along with a 2/10 yield curve that was 13bps flatter compared to the levels seen in early November. Despite the prevailing bullish sentiment towards long-end global bonds and the relative affordability of 10-year JGBs compared to futures with a 7-year maturity, these factors were not enough to bolster the bid during today's auction.
• There wasn't much in the way of domestic data to flag, outside of the previously outlined Tokyo CPI, which surprised on the downside.
• Cash JGBs remain mixed, with yield movements bounded by +/-1bp. The benchmark 10-year yield is 0.8bp lower at 0.691% versus a pre-auction high of 0.704%.
• Swaps are also dealing mixed, with swap spreads tighter.
• (Reuters ICYMI) Japan plans to issue Y1.6tn of climate transition bonds with five- and 10-year tenors in February, three people with direct knowledge of the matter said.
• Tomorrow, the local calendar is empty.