Futures Weaker But At Tokyo Session Highs, Rinban Operations Could Support Markets

At the Tokyo lunch break, JGB futures sitting at Tokyo session bests, -6 compared to the settlement levels, despite slightly higher-than-expected core and core-core CPI reading for May.

• As flagged earlier, today’s CPI prints clearly add to risks around an upside revision to the BoJ's inflation outlook in July. However, BoJ board rhetoric this week has pushed back against the need for any YCC tweaks at the July meeting.
• Jibun Bank preliminary PMI data printed weaker across the board in June with the manufacturing index at 49.8, the services index at 54.2 and the composite at 52.3.
• The cash JGB curve twist steepens beyond the 1-year zone with 2-4-year zone yields 0.7-0.9bp lower and the 30-year zone yield 0.7bp higher. The benchmark 10-year yield is 0.3bp higher at 0.382%, below the BoJ's YCC limit of 0.50%.
• This morning’s BoJ Rinban operations saw flat to negative spreads and lower cover ratios (1-3-year: 1.46x, 3-5-year: 1.50x, 5-10-year: 1.60x and 10-25-year: 2.13x), which may generate some slight support in early rounds of the Tokyo afternoon session.
• Swap rates are higher across the curve with swap spreads wider except for the 7-year and the 20-30-year zones.