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JGBS: Cash Bond Bull Flattener After PPI Services Beat

JGBS
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In Tokyo morning trade, JGB futures are holding stronger, +14 compared to settlement levels, after reversing early losses seen after the PPI Services beat. 

  • The PPI Services print was stronger than forecast for Oct. It rose 2.9% y/y, against a 2.5% forecast and a revised 2.8% gain in Sep (the original print was +2.6% y/y). In m/m terms we rose 0.8%.
  • At face value, this points to a supportive backdrop for headline CPI in Japan. Recently we have seen a modest divergence between the two series, but the historical direction correlation is firm.
  • Services/domestic related inflation has been a key focus point for the BOJ as it looks for a durable inflation backdrop around its 2% inflation target. Today's data helps this case at the margin. Last week BoJ Governor Ueda stated the outcome of the Dec meeting couldn't be predicted, which suggests it will be a live meeting.
  • Cash US tsys are flat to 1bp cheaper in today’s Asia-Pac session after yesterday’s strong Bessent-induced rally. 
  • Cash JGBs are flat to 2bps richer across benchmarks, with a flattening bias. The benchmark 10-year yield is 1.8bps lower at 1.059% versus the cycle high of 1.108%.
  • The swaps curve has twist-steepened, pivoting at the 20-year, with rates 1bp lower to 2bps higher. Swap spreads are generally wider. 
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In Tokyo morning trade, JGB futures are holding stronger, +14 compared to settlement levels, after reversing early losses seen after the PPI Services beat. 

  • The PPI Services print was stronger than forecast for Oct. It rose 2.9% y/y, against a 2.5% forecast and a revised 2.8% gain in Sep (the original print was +2.6% y/y). In m/m terms we rose 0.8%.
  • At face value, this points to a supportive backdrop for headline CPI in Japan. Recently we have seen a modest divergence between the two series, but the historical direction correlation is firm.
  • Services/domestic related inflation has been a key focus point for the BOJ as it looks for a durable inflation backdrop around its 2% inflation target. Today's data helps this case at the margin. Last week BoJ Governor Ueda stated the outcome of the Dec meeting couldn't be predicted, which suggests it will be a live meeting.
  • Cash US tsys are flat to 1bp cheaper in today’s Asia-Pac session after yesterday’s strong Bessent-induced rally. 
  • Cash JGBs are flat to 2bps richer across benchmarks, with a flattening bias. The benchmark 10-year yield is 1.8bps lower at 1.059% versus the cycle high of 1.108%.
  • The swaps curve has twist-steepened, pivoting at the 20-year, with rates 1bp lower to 2bps higher. Swap spreads are generally wider.