Futures Weaker Despite Solid Absorption Of 40Y Supply

JGB futures remain in negative territory in the Tokyo afternoon session, -23 compared to settlement levels, despite solid absorption of today’s 40-year supply.

• There hasn’t been much in the way of domestic drivers to flag, outside of the previously outlined PPI Services.
• Cash JGBs are cheaper across the curve out to the 30-year, with yields 0.1bp (5-year) to 1.2bps (futures-linked 7-year) higher. The benchmark 10-year yield is 0.6bp higher at 0.742%, above BoJ's YCC soft limit of 0.50% but below its hard limit of 1.0%. It is also lower than the cycle high of 0.756%, set prior to the BOJ decision on Friday.
• The 40-year JGB yield is 0.4bp lower on the day at 1.846% and 1bp lower in post-auction trade. After a lacklustre 30-year auction earlier this month, today’s solid demand metrics suggest outright yields may be starting to provide adequate compensation for uncertainties and that the ongoing trend of local market participants shifting their portfolios from hedged offshore debt to holdings in yen-denominated bonds remains in play.
• The swaps curve has twist-flattened, pivoting at the 30s, with rates 0.1bp higher to 0.3bps lower. Swap spreads are mixed across maturities.
• Tomorrow the local calendar sees BOJ Minutes for the July Meeting, Leading and Coincident Indices, and Machine Orders.
• Tomorrow will also see BoJ Rinban operations covering 3- to 25-year+ JGBs.