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Richer After Solid Demand At 10-year Auction, US Tsys Pressure

JGBS

JGB futures have strengthened in afternoon Tokyo trade, +12 compared to settlement levels. This positive movement can be attributed to the solid demand observed in the results of the 10-year JGB auction.

  • However, the gains in JGB futures were countered to some extent by weaker US tsys in Asia-Pac trading. The reversal in US tsys occurred following the news of the US House of Representatives had voted to lift the US debt ceiling by a margin of 314-117. The bill now awaits consideration in the Democrat-led Senate. As a result, US tsys weakened, reversing the earlier 1-3bp rally seen during the early Asia-Pacific session and turning into a 3-4bp cheapening across the yield curve, extending out to the 10-year maturity.
  • Cash JGBs are richer across the curve with yields 0.6-1.3bp lower. The 5-year zone is the outperformer, with the 4-year zone as the laggard.
  • The benchmark 10-year yield is 1.0bp lower at 0.426%, after 10-year supply is well received with the low-price meeting wider expectations and the cover ratio rising to 3.689x from 3.60x at the previous auction.
  • The swap curve shifts lower with rates 0.2-0.9bp lower. Swap spreads are wider across the curve.
  • The local calendar tomorrow is light tomorrow with Monetary Base for May as the only release.
  • Tomorrow will also see BoJ Rinban operations covering 1-5-year and 10-25-year JGBs.
  • Ahead of that, the US calendar today sees the release of the ADP Employment report and ISM Manufacturing Index.
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