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Overnight Gains In Futures Pared, PPI Prints In Line, 5Y Supply Due


In Tokyo morning trade, JGB futures are richer, +12 compared to settlement levels, but have scaled back overnight gains despite the PPI data offering few surprises.

  • Japan's Nov PPI was close to expectations, rising 0.2% m/m, while the prior was -0.3%. The y/y outcome rose 0.3%, slightly above the 0.1% forecast, while the prior was 0.9%. The evolution of the PPI continues to be waning y/y momentum. The print is unlikely to shift BOJ thinking ahead of next week's policy meeting.
  • According to MNI’s technicals team, JGB futures slid sharply Friday, refuting the recent bullish bias and returning prices back to support. 143.44, the Oct 31 low, mark key support and a medium-term bear trigger. Initial support is at 145.53, the Nov 27 low.
  • Cash JGBs are slightly mixed, with the futures-linked 7-year as the underperformer (+1.2bps). The benchmark 10-year yield is 0.3bp higher at 0.768%.
  • Ahead of today’s supply, the 5-year is 0.3bp higher at 0.349%. This auction follows a decent 5-year auction in November but comes on the heels of poor digestion at December’s 10- and 30-year JGB supply and November’s 2-year auction. It's worth noting that the cover ratio was the lowest for a 2-year auction since 2009.
  • Swaps are also mixed, with swap spreads mixed across maturities.

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