JGB Futures Firm As Cash 10-Yr Yield Nears Ceiling, Mix Of Factors Keeps Lid On ACGBs

The trajectories of core FI futures diverged, although erosion of risk appetite provided some broader support in afternoon trade. Shanghai announced that one of its districts will be placed under lockdown for mass COVID-19 testing on Saturday, in a reminder that China's COVID-19 troubles are not over. Participants parsed regional headlines, with one eye already on the upcoming ECB monetary policy decision, the main risk event today.

• T-Notes extended Wednesday's sell-off as the Asia-Pac session got underway. They pierced yesterday's low and slid as low as to 117-26+ before finding support as market sentiment worsened. TYU2 now trades -0-03+ at 117-31, comfortably above session lows, with Eurodollars last seen unch. to 4.0 ticks lower through the reds. Cash Tsys unwound earlier gains, yields last trade 0.9-1.6bp higher, curve runs a tad flatter. Weekly jobless claims and a 30-year auction headline in the U.S. today.
• ACGBs remained on a softer footing. 10-Year yield showed at its highest point since 2014 as the long end cheapened. Similar dynamics were evident in futures space, with YM last +1.0 & XM -3.5. Bills trade -1 to +10 ticks through the reds. Initial selling pressure seemed linked to a combination of carry-over impetus from NY hours, inflation worry signalled in recent comments from Australian officials, and trans-Tasman spillover from NZGB sell-off. New Zealand bonds went offered across the curve as the RBNZ announced that it will start shedding government bonds acquired under the LSAP programme from next month, with the process expected to be completed by mid-2027.
• JGB futures re-opened on a firmer footing and extended gains from there, defying cues from overnight U.S. Tsys' performance, as the market showed confidence in the BoJ-mandated cap on 10-year yield. The active futures contract last trades at 149.62, 7 ticks above previous settlement but 4 ticks shy of session highs. Cash curve twist steepened as the super-long end sold off. Worth highlighting that 10-Year yield is within 1bp from the 0.25% ceiling of its permitted trading band. Elsewhere, the MoF conducted a liquidity enhancement auction for off-the-run JGBs with 5-15.5 years until maturity, drawing a bid/cover ratio of 6.153x (prev. 4.331x).