Futures Weaker As US Tsys Cheapen, Look Thru Weak US Data

In post-Tokyo trade, JGB futures are weaker, closing -24 compared to settlement levels, after US tsys finished 2-8bps cheaper across the major benchmarks. The curve steepened. The 30-year yield printed its highest level since November as the Tsy prepares for more long-dated issuance. US tsys looked through weaker than forecast US data. JOLTS Job Openings, ISM Mfg and Prices Paid all printed below expectations. A brief bid was unwound and US tsys marginally extended losses as technical flows weighed.

• US tsys are marginally firmer thus far on Wednesday as Fitch downgraded the US to AA+ from AAA. Fitch noted that the rating change reflected an expected fiscal deterioration over the next three years, a high and growing government debt burden and repeated debt limit standoffs.
• Bloomberg reports that expectations of a resultant “shockwave” in global capital flows look somewhat overstated, insofar as any putative further yield rise looks pretty modest in the context of global yield spreads. That being said, it looks like Japanese investors have been rolling the dice with unhedged foreign bond purchases, which ultimately means that they’re gambling on a weak yen. (See link)
• On the data front today we just have July monetary base data, which is unlikely to be a market mover. We also get the BoJ minutes from the June policy meeting along with BoJ Rinban operations covering 1- to 25-Year+ JGBs.