Futures Unwind Overnight Bid, 10-Year Auction Sloppy At Best

JGB futures have unwound the bulk of their overnight session bid, with the contract +7 into the close. Wider cash JGBs run flat to 6bp richer, with the super-long end outperforming all day. Swap spreads are generally flat to wider, excluding 10s, which are a touch tighter.

• Intermediates moved away from best levels in set up for this afternoon’s 10-Year JGB supply after latching onto the wider bid in core global FI markets post-FOMC.
• Further weakness was observed in the afternoon, after the 10-Year JGB auction saw the cover ratio continue to hover just below the 6-auction average, while the low price missed wider expectations, with the average price also printing below the expectations for the low price. The price tail was also wide. It would seem that uncertainty re: the BoJ kept some on the sidelines (as we suggested may be the case), while the structural richness promoted by the BoJ’s YCC settings probably acted as a further headwind for demand. This resulted in the need for further concession for supply to be absorbed.
• Comments from soon to be departing BoJ Deputy Governor Wakatabe reaffirmed the need for continued easing, while he also pushed back against the idea of a more ambiguous inflation target ahead of a potential tweak to the BoJ-government accord on inflation.
• Friday’s local docket is headlined by final services & composite PMI data as well as the latest round of BoJ Rinban operations.