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JGBs Cheapen As Suga Chooses To Stand Down


A generally tight round of pre-NFP Asia-Pac trade saw a pickup in activity on the back of Japanese political developments, although broader ranges remained contained. Elsewhere, the latest Chinese Caixin services PMI print registered the first headline contraction for the survey since April '20 (printing at 46.7), but that didn't move broader core markets as it confirmed the general dynamic witnessed in the equivalent official reading i.e. a hit on the back of the COVID restrictions.

  • T-Notes stuck to a 0-02 range owing to the proximity to the aforementioned key data release, last -0-00+ at 133-16+. Cash Tsys trade little changed to 1.0bp cheaper across the curve. Focus is squarely on Friday's NFP release. The latest ISM services survey reading will compliment the NFP release later in the NY session. We should also point out that Monday is Labor Day in the U.S. which may hamper liquidity during Friday trade (Friday is a full session for Tsys).
  • JGB futures have breached key near-term support in the form of the Aug 12 low (151.99), trading as low as 151.91 in the wake of the previously alluded to political developments. Bears now look to the Jun 17 low (151.49) as the next area of technical support. Japanese PM Suga has chosen not to run for Party leadership in the upcoming vote, effectively ceding his position as PM. Cash JGBs trade flat to ~1.0bp cheaper across the curve, with 7s leading the way lower in early afternoon dealing. Elsewhere, the results of the latest BoJ Rinban operations revealed the following off to cover ratios: 1- to 3-Year: 2.60x (prev. 3.22x), 3- to 5-Year: 2.65x (prev. 2.45x), 10- to 25-Year: 2.07x (prev. 2.26x).
  • YM -0.5 and XM -2.0, with some modest weakness observed on the back of the dip in JGBs. The latest round of ACGB Nov '27 supply was well received. The cover ratio nudged higher, with the weighted average yield printing 0.9bp through prevailing mids at the time of supply, per Yieldbroker. It would seem that the familiar supportive factors outweighed the background worries that some desks highlighted ahead of the auction. Next week's AOFM issuance slate is vanilla.
MNI London Bureau | +44 0203-865-3809 |
MNI London Bureau | +44 0203-865-3809 |

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