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Massive Cash Curve Bear-Steepener After Poor 10Y Auction, BoJ Rinban Operations Tomorrow

JGBS

JGB futures are sharply cheaper, -136 compared to the settlement levels, but slightly off session cheaps.

  • Outside of the previously outlined cash earnings data, there hasn't been much in the way of domestic data drivers to flag.
  • That said, today’s 10-year auction showed poor demand metrics. The low price failed to meet wider expectations, the cover ratio fell to 2.975x from 3.277x and the tail exploded to 0.5 from 0.02 in July. The result defied the fact that sentiment towards global long-end bonds is at the most favourable level this year. A sharply lower outright yield and flatter 2/10 curve appeared to significantly impact the level of demand at today’s auction.
  • Cash US tsys are 4-6bps cheaper in today’s Asia-Pac session, extending the reversal in the direction seen yesterday. Today's US calendar will see Trade Balance data and a 3-year tsy note sale. There is no scheduled Fed speak.
  • The cash JGB curve has sharply bear-steepened, with yields flat to 19bps higher. The benchmark 10-year yield is 11.5bps higher at 0.907% after today’s supply.
  • The swaps curve has also bear-steepened, with rates 1-10bps higher. Swap spreads are tighter.
  • Tomorrow, the local calendar will see Leading and Coincident Indices alongside BoJ Rinban Operations covering 1-5-year and 10-25-year JGBs.
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