JGBs Outperform, Aided By Solid 10-Year JGB Auction

T-Notes continue to operate within the confines of a very narrow 0-02+ range, looking through the latest round of Chinese Caixin m'fing PMI data, which came in on the softer side. The contract last deals -0-06 at 132-10. The major cash Tsy benchmarks trade little changed to 1.0bp cheaper on the day, with Asia-Pac activity hindered by a lack of meaningful headline flow and the observance of a holiday in Hong Kong.

• JGB futures held on to their overnight gains during the Tokyo morning, building on the uptick during the afternoon to last trade +12 vs. yesterday's settlement. The major benchmarks across the cash JGB space richened by 0.5-2.0bp, with the long end lagging, prompting some light bull steepening, with that dynamic perhaps aided by the proximity to this afternoon's 10-Year JGB auction (10s caught up to the rally in the wake of the auction). The allure of new paper & the attractive carry and rolldown proposition vs. the belly of the curve likely supported takedown at the auction, with the price tail narrowing back to a compact length after last month's widening, while the cover ratio ticked back from the multi-year low witnessed at June's 10-Year JGB auction. The low price topped broader expectations, proxied by the BBG dealer poll. Still, in the grand scheme of things it wasn't the strongest auction we have seen and was working against a low base, with some valuation (both outright and relative) matters likely constraining demand.
• Much like U.S. Tsys, the ACGB space isn't going anywhere fast, with no impetus drawn from today's local data releases, while the presence of the latest round of scheduled ACGB purchases (covering maturities of Nov '28 to May '32) is likely providing an underlying bid to that area of the curve. YM & XM both -0.5 on the day.