Overnight Losses In Futures Extended In Early Tokyo Trade

In Tokyo morning trade, JGB futures have extended overnight losses, -26 compared to settlement levels.

• According to Bloomberg, tweaking JGB yield curve control to an upper bound of 1% has helped to put Japanese bonds back into the mainstream of G-10 bond moves. BOJ chief Ueda still has a bit of time until 10-year JGBs will reach that new threshold. But it will be tough to avoid that destination with Treasuries driving global yields higher. Especially after Moody’s warning that a US government shutdown would reflect governance weakness. (See link)
• Japan’s August Services PPI rises +2.1% y/y versus +1.8% est.
• Cash JGBs are cheaper across the curve, with yields 0.4bp (4-5-year) to 1.2bps (futures-linked 7-year) higher. The benchmark 10-year yield is 0.6bp higher at 0.742%, above BoJ's YCC soft limit of 0.50% but below its hard limit of 1.0%. It is also lower than the cycle high of 0.756%, set prior to the BOJ decision on Friday.
• The 40-year JGB yield is 0.5bp higher at 1.855%, ahead of today’s supply.
• The swaps curve has bear-steepened, with rates 0.4bp to 1.1bps higher. Swap spreads are mixed across maturities.