JGB's have recovered some early losses.........>

JGBS: JGB's have recovered some early losses heading into the lunch break,

despite the reduction in BoJ bond purchases in the 5-10 Year zone. JGB's

initially sold off at the open in Tokyo, tracking moves lower in UST's after

stronger than expected US retail sales. 

- The BoJ reduced the purchases in the 5-10 Year zone by Y30bln to Y440bln,

below even the initial level of Y450bln, purchases were increased to Y500bln to

stem yield rises in the 10-Year sector on July 7. 

- Reaction in the JGB market was surprisingly limited, futures initially dropped

3 ticks to 150.53 while yields in the 10-Year sector rose 0.2bp. This move was

reversed soon after and JGB's are now up 1 tick at 150.59, just off session

highs at 150.60. Sources note the earlier trade of liquidation of shorts

established in June is still in play which is putting upward pressure on JGB's,

the futures contract just below the highest levels since late June.

- Yields have dropped slightly on this latest spate of buying but remain in

positive territory, 5-Year sector seeing selling ahead of the auction tomorrow.

Swaps outperforming in the short end again.