JGB Curve Shifts From A Bull-Flattening To Bear-Steepening

JGB futures have reversed course during the Tokyo afternoon session, with the morning’s strong gain giving way to a significant loss, -25 compared to the settlement levels.

• Weaker-than-expected retail sales gave the market a reason to extend US-tsy-induced overnight gains.
• However, by the lunch break, those gains had been pared despite the cautious tone to a speech from BOJ Nakamura. Bloomberg reported that Nakamura said it will take a little more time before the bank can adjust monetary policy, as it needs to act with caution.
• The catalyst for afternoon weakness appears to have been weak demand metrics at today’s 2-year JGB auction. It followed a similar result at the 40-year auction earlier in the week.
• As highlighted in our auction preview, the interplay between the emerging bullish sentiment towards short-term global bonds and a diminished outright yield was anticipated to be intriguing. It is evident that the latter factor significantly influenced the bidding dynamics in today's auction.
• The cash JGB curve shifted from a bull-flattening in the morning session to a bear-steepening.
• The swaps curve has also shifted to a bear-steepening, with rates 1-5bps higher. Swap spreads are mixed.
• Tomorrow, the local calendar sees Jobless Rate, Job-To-Applicant Ratio, Capex, Company Profits and Jibun Bank Japan PMI Mfg data.