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Futures Stronger, Solid US 20-Year Auction, 5-Year Supply Due

JGBS

In post-Tokyo trade, JGB futures are stronger, closing +8 compared to settlement levels, after US tsys finished with a twist flattening of the curve. US tsy yields moved higher after higher-than-expected UK inflation data but recovered following a solid 20-year bond auction.

  • The 20-year bond auction achieved a yield that traded 1.8bp below the WI yield, and it attracted strong demand with a record-high bid/cover ratio of 2.87x, surpassing the previous month's ratio of 2.56x.
  • In contrast, short-term tsys remained cheaper on the day, with the 2s10s spread testing a downside inversion of 100bp late in the session.
  • According to Bloomberg Economics, Japan’s CPI inflation (due tomorrow) likely slowed in May making April’s pickup appear to have been a blip. This should allay concern that cost-push forces were gaining the upper hand again. (See link)
  • Today on the data front we have weekly investment flows.
  • We do have another BoJ speaker today, with Noguchi speaking in Okinawa. Yesterday, comments from Adachi left the impression that the bar for a YCC shift in July is quite high. (See link ICYMI)
  • The MoF plans to sell Y2.5tn of 5-year supply today. Results are due at 0435 BST/1235 JST.

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