Though JGB prices dipped yesterday and are.....>

JGBS: Though JGB prices dipped yesterday and are slighlty lower in the morning

today they had previously rallied for five consecutive sessions to hit contract

highs around 151.35. Futures remain supported by ongoing geopolitical tensions

with North Korea and the BoJ's YCC programme. The roll in JGB futures currently

trades at 0.21, slightly tighter than 0.22 seen at the end of last week.

- The contract will roll into JGB 336 (from JGB 335), 336 has only Y2.86tln

outstanding of which 62% is held by the BoJ. Tight supply conditions could see a

jump in the price of JGB 336 as we approach the roll date of Sept 12. The demand

theory is supported by the implied repo rate which has dropped to -26.328% for

issue 336, but risen to 1.075% for issue 335.

- The short supply of JGB 336 means it is richer on the curve when compared to

the current CTD 10-Year issue 335. On a Z-Spread basis the yield is at -1.74 v

-1.61 for 335.