Tight Trade, Futures Off Lows, Curve Bear Steepens

JGB futures edged away from their overnight trough during the Tokyo morning, although the contract has stuck to a very narrow range, hitting the lunch bell -22 vs. settlement.

• There hasn’t been anything in the way of meaningful domestic news flow to digest since the Tokyo open, although there has been confirmation that U.S. House Speaker Pelosi will visit Japan on Thursday, in what will be another leg of her heavily-watched trip to the Asia-Pacific region.
• Cash JGBs run 0.5-3.0bp cheaper on the day, with 10s providing the weakest point on the curve. Much of the long end has stuck to ranges established in early dealing after the initial cheapening adjustment in lieu of Tuesday’s core global FI moves (10s being the exception).
• The breakdown of the latest round of BoJ Rinban operations revealed the following offer/cover ratios:
• 1- To 3-Year: 2.14x (prev. 2.66x)
• 3- To 5-Year: 2.78x (prev. 3.22x)
• 10- To 25-Year: 4.21x (prev. 4.85x)
• These results may provide very modest support to the space in early afternoon dealing, but we wouldn’t expect much tangible impact to come from this matter in isolation. More support is likely to come from the uptick observed in U.S. Tsys during the Tokyo lunch break.