Offshore Catalysts Drive Futures Into Positive Territory

In Tokyo morning trade, JGB futures are stronger, +10 compared to settlement levels, after reversing weakness seen overnight on Friday.

• With the domestic calendar light today, the early strengthening appears driven by news from abroad. First, US President Biden has pulled out as the Democratic candidate for November’s election. Biden has endorsed VP Harris, but it is not a given that she will automatically be the party’s candidate.
• Cash US tsys are flat to 2bps richer in today’s Asia-Pac session, with a flattening bias.
• Secondly, headlines have crossed that China has cut the 7-day repo rate to 1.70% from the prior 1.80% (per BBG). This comes after the recent Third Plenum meeting and last week's softer data updates (with Q2 GDP weaker than forecast and retail sales slowing further). Note we have the 5yr and 1yr LPRs coming up soon.
• Trust banks and global funds led the buying of Japanese government bonds last month, according to the latest data from the Japan Securities Dealers Association released on Monday. (as per BBG)
• Cash JGBs are little changed, with yield movements bounded by +/- 1.5bps. The benchmark 10-year yield is 0.1bp lower at 1.042% versus the cycle high of 1.108%.
• The swaps curve has twist-steepened, with rates 1.5bps lower to 1bp higher. Swap spreads are tighter.