JGBs Give Away Initial Strength

Early spell of demand for JGBs took futures to the session highs of 152.19, but the contract turned its tail thereafter and more than wiped out initial gains. JGB futures finished the morning session at 152.13, 3 ticks above last settlement. Cash JGB yields trade mixed across the curve, although 20s & 40s lagged early on.

• Initial underperformance in 20- & 40-Year JGBs was likely linked to the fallout from yesterday's meetings between MoF officials, bond investors and primary dealers. In the wake of the meetings, the MoF said that Japan's primary dealers think that the market has the capacity to absorb more 20- & 40-Year JGBs, while showing little support for more 30-Year issuance. The MoF will hold another meeting with primary dealers in December.
• The meeting was organised at a time when the Japanese government is trying to put together the third extra budget. An adviser to PM Suga said that the new stimulus plan should reach Y40tn, considerably more than expected by bond traders, if it is to prevent large-scale job losses. Elsewhere, FinMin Aso said that the extra budget has to help Japan's economic transition after the pandemic, rather than just support the status quo.
• Focus turns to today's auctions for 3-Month Bills & 2-Year JGBs. BBG poll predicted that the low price in the 2-Year auction may be 100.480.
• The BoJ will release its monthly bond buying schedule at 17:00 JST.