JGBs Lag Recovery In Core FI, 10-Year Auction Under Scrutiny

JGB futures regained poise amid re-emerging risk aversion but a mixed 10-Year auction saw them lose some altitude again.

• Initial selling pressure was linked to hawkish Fed/ECB talk from Wednesday, which pulled the rug from beneath the broader core FI space in early dealing.
• Futures recovered into the Tokyo lunch break as China's Caixin M'fing PMI came in at 49.5, missing the median estimate of 50.0.
• JBU2 returned from lunch on a firmer footing, but erased those gains as participants parsed the details of the latest 10-Year JGB auction. Pricing data were mixed as the tail narrowed at the margin, but the low price printed below the average estimate from a BBG dealer poll.
• The news that China has locked down the city of Chengdu to contain the local outbreak of COVID-19 failed to rekindle demand for JGBs despite generating some fresh risk-off flows.
• JGB futures last trade at 149.37, 16 ticks shy of Wednesday's settlement. Cash JGB curve runs steeper, yields sit higher. The U.S./Japan 10-year yield gap is slightly tighter.