Twist Flattening Ahead Of 20-Year Supply

JGB futures unwound their early Tokyo uptick as core FI markets came under pressure, with worry surrounding the potential for a 100bp Fed rate hike gripping the Asia-Pac region. The contract hit the Tokyo lunch break 9 ticks below yesterday’s settlement levels, sticking to a fairly narrow range. Cash JGBs twist flattened, in sympathy with post-CPI U.S. Tsy trade, pivoting around the 10- to 20-Year zone, with the major benchmarks running 1.5bp cheaper to 1.5bp richer across the curve (a similar move was observed in swaps).

• Domestic headline flow has seen a continued uptick in worry re: FX market moves amongst senior Japanese policymakers
• Elsewhere, foreign investors registered the largest round of net weekly purchases of Japanese bonds observed since July of last year. We would suggest that this largely represents continued short covering in JGBs (third straight week of net purchases) after the BoJ reinforced the upper end of its permitted 10-Year JGB yield trading band in June (with foreign investors willing to test the BoJ’s resolve at that time).
• This afternoon’s 20-Year JGB supply provides the highlight of the domestic docket and didn’t result in anything the way of meaningful concession during morning trade.