JGBS: Twist-Flattening After Yesterday’s Holiday, Light Local Calendar

In Tokyo morning trade, JGB futures are sharply higher, +19 compared to settlement levels, after yesterday’s holiday.

• Today, the local data calendar has the July tertiary industry index on tap this afternoon.
• At its September 19-20 policy meeting, the BoJ is expected to weigh whether gradual, timely interest rate hikes are necessary to avoid falling behind the curve and potentially facing steeper increases later. While the BoJ does not commit to a specific pace, policymakers may consider quarterly 0.25% rate hikes, aiming toward 1%, with the option to adjust depending on economic and price developments.
• The BoJ could accelerate tightening if data on capital investment and consumption, and a resilient US economy, support such a move. However, if higher rates begin to weigh on Japan’s economy or if the US enters a downturn, the BoJ may adopt a more cautious approach.
• Cash US tsys are ~1bp cheaper in today’s Asia-Pac session after yields fell 2-5bps yesterday. 
• The cash JGB curve has twist-flattened, pivoting at the 2-year, with yields 1.5bps higher to 2bps lower. The benchmark 10-year yield is 1.9bps lower at 0.831% versus the early August low of 0.74%
• Swap rates are flat to 2bps lower out to 30-year and 1bp higher beyond. Swap spreads are slightly tighter.