Reverting To Flattening

Wider core FI gyrations have been at the fore for JGBs from the start of Tokyo trade, with futures eating away at their modest early downtick during the Tokyo afternoon to trade +28 vs. yesterday’s settlement into the bell (failing to challenge overnight session highs).

• JGBs have reverted to flattening after yesterday’s steepening, with the space benefitting from Thursday’s recession worry driven bid in U.S. Tsys and moves lower in Chinese & Hong Kong equities. The major cash JGB benchmarks run 1.0-4.0bp richer on the session, with 40s providing the firmest point on the curve.
• Note that swap spreads are wider across the curve, with super-long swaps even seeing payside flow during the Tokyo morning.
• There was a modest upside surprise across the Tokyo CPI data suite, a non-descript labour market report, while domestic retail sales data provided a miss and prelim industrial production data provided a beat.
• The results from the latest round of BoJ Rinban operations had no meaningful impact on the space.
• As an aside, there was another notable pull lower in JPY crosses, led by a technical break in USD/JPY and short JPY position squaring.
• The BoJ will release its August Rinban plan after hours today. Looking ahead, Monday’s Tokyo docket will be headlined by final manufacturing PMI data.