JGBs Sell Off At Bell, Markets Await NFPs

Tsys have moved away from best levels but remain in limited range. TYH2 +0-02+ at 128-19+ at typing, operating within a 0-05+ trading band, while cash Tsys sit little changed to 1.0bp cheaper across the curve. There has been a lack of meaningful news flow during asia hours, with participants focused on Friday’s NFP release. A block trade consisting of the sale of FVG2 120.00 puts (-15.0K) and FVH2 buying (+8K) headlined on the flow side. As mentioned, focus is squarely on Friday’s NFP report, with the recent hawkish repricing in the front end of the Tsy curve & STIRs providing the potential for increased volatility if the dataset disappoints. Elsewhere, Fedspeak will come from ’24 voters Bostic & Daly.

• JGB futures initially unwound their overnight weakness on local COVID worry (potential for a delay re: the Go To travel campaign & for a quasi state of emergency declaration in a handful of prefectures). That was before a sharp bout of selling hit the contract into the bell, leaving it -15 at the close. This was perhaps a result of some pre-U.S. NFP worry in thin markets ahead of elongated Tokyo weekend. Elsewhere, 30-Year JGB supply went well, with the tail narrowing and cover ratio moving higher when compared to last month’s auction. More granularly, the cover ratio hit the highest level seen at a 30-Year auction since July, residing comfortably above the 6-month average. Elsewhere, the low price also topped broader dealer expectations. Outright interest on the back of multi-month high yields and the previously outlined long end interest on the part of Japanese life insurers likely drove demand at the auction. Cash yields were marginally higher (<+1.0bp) across most of the curve.
• Aussie bonds benefitted from the reinstatement of some COVID-related limits in NSW, although the moves weren’t particularly pronounced. YM +2.0 and XM +1.0 at the bell as a result. There wasn’t anything in the way of a notable market reaction to the AOFM declaring that “a new November 2033 Treasury Bond will be issued by syndication in the final quarter of 2021-22 (subject to market conditions),” with a lack of Q122 syndication and a run of the mill extension of the 10-Year futures basket providing no headwinds for the space.