Soft 10-Year Auction Adds To Early Pressure, Futures More Than Unwind Overnight Gains

A soft round of 10-Year JGB supply added to some early Tokyo pressure (the latter was a product of Tokyo’s seemingly greater focus on the potential ramifications of higher oil prices, as opposed to Monday’s soft U.S. manufacturing data, as well as some cheapening in U.S. Tsys and the presence of the 10-Year JGB auction), leaving JGB futures comfortably below settlement levels as we work towards the Tokyo close, last -19, more than reversing overnight session gains.

• JGB futures hit session lows in the wake of the auction, before stabilising and working away from worst levels,
• Wider cash JGB trade sees the major benchmarks running little changed to ~4bp cheaper on the day, with the super-long end coming under the most pressure.
• The swap curve twist steepened.
• Local headline flow saw Finance Minister Suzuki point to a need for a permanent source of revenue for the government’s child-related spending policies, with an unveiling of the framework surrounding the matter scheduled for June. Suzuki was explicitly cautious re: additional bond issuance to finance the policy steps, but that did little to support the space.
• Looking ahead, BoJ Rinban operations covering 1- to 5- & 10- to 25+-Year paper (the first Rinban since the well-documented tweak to the purchase bands in the Q2 outline) headline tomorrow, with final services & composite PMIs also slated.