Futures Unwind Overnight Gains, Curve Twist Steepens

Early Monday trade saw JGB futures extend on the late overnight session pull away from best levels as Tokyo participants reacted to some hope surrounding further support for the U.S. banking sector, although worry re: the European banking and Chinese property sectors limited the move in general, with most of the cash curve remaining bid on the day.

• JGB futures sit at unchanged levels as we enter the last hour of Tokyo trade, with a recovery in the Hang Seng and bid in e-minis the more prominent moves in Asia-Pac trade, while cash JGBs are 2.5bp richer to 1bp cheaper across the curve as 10s outperform and only 40s trade cheaper on the day.
• Spill over from swap flows will have applied some pressure to the space, with that curve steepening as rates ticked higher, meaning that swap spreads ran wider all day.
• Marginally firmer than expected domestic services PPI data will have also aided the direction of travel for JGB futures in early Tokyo trade.
• Elsewhere, domestic catalysts were light. The weekend saw the junior party in the ruling coalition affirm previous guidance re: the rough spending outline for the impending round of fiscal stimulus.
• 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.