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Long End Bid Dominates Tokyo Trade

JGBS

JGB futures have recovered from lows during the Tokyo afternoon, last dealing +5. This comes after the contract found some poise alongside the wider core global FI space in the wake of the latest Australian CPI reading, although moves were limited.

  • Cash JGBs have continued their early twist flattening, as the major benchmarks run 0.5bp cheaper to 5bp richer, with 20+-Year paper bid from the get go. A reminder that yesterday’s well-received 40-Year JGB auction has been a trigger for notable flattening of the wider JGB curve, with 40s now operating ~15bp shy of yesterday’s yield peak.
  • The bid seems JGB centric, with swap spreads wider across the entire curve, while only 30- & 40-Year swap rates are (marginally) lower on the day.
  • Both domestic and macro headline flow has been rather limited since the Tokyo open, leaving cross-market impetus at the fore.
  • BlueBay Asset Management have noted that they maintain their notable short position in 10-Year JGBs, even in light of the recent rally/BoJ defence of its current YCC settings, with their CIO stating that “we have been looking for the Bank of Japan to signal a policy shift in September as inflation continues to rise with the yen trending weaker as policies diverge. This continues to be the case.”
  • Looking ahead, 2-Year JGB supply headlines Thursday’s domestic docket.
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

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