Twist-Flattened After 20Y Supply Goes Well

JGB futures have weakened and are currently trading near the mid-range of today’s session, -4 from settlement levels. With a light domestic calendar, local participants were primarily focused in the morning session on a Reuters report suggesting the BoJ’s consideration to end negative interest rates in the upcoming months, despite the country's recession, as well as the resumption of trading for cash US tsys after yesterday’s holiday. In the afternoon session, attention shifted to the results of today’s 20-year supply.

• 20-year supply displayed strong demand metrics. The low price beat dealer expectations, the cover ratio increased to 3.852x from 3.126x at last month’s auction and the auction tail shortened materially.
• After the lunch break, JGB futures exhibited a notable uptick, reaching new session lows, and the 20-year JGB witnessed a 3bps richening in post-auction trading. Although JGB futures retraced some of their initial gains, the 20-year bond sustained its rally.
• Cash US tsys are dealing flat 2bps cheaper in today’s Asia-Pac session.
• Cash JGBs have twist-flattened, pivoting at the 7s, with yields 0.6bp higher to 3.4bps lower (20-year). The 20-year yield is currently 1.482% versus this morning’s high of 1.528%.
• The swaps curve has bull-flattened.
• Tomorrow, the local calendar sees Trade Balance and Machine Tool Orders data, along with BoJ Rinban operations covering 1-10-year JGBs.