Twist Flattening As Long End Goes Bid In The Afternoon, Futures Hold Lower

JGBs futures looked through, but failed to make a meaningful break below, their overnight base, before retracing from worst levels to finish -13, consolidating their overnight weakness.

• Broader cash JGB trade saw the major benchmarks run 1bp cheaper to 4bp richer, pivoting around 10s as the curve twist flattened, with 7s leading the weakness on the downtick in futures.
• Finance Minister Suzuki reiterated that debt isn’t considered a sustainable funding source, while stressing that no definite decisions on funding matters surrounding increased defence spending had been made in lieu of reports re: the potential deployment of construction bonds to fund some of the spending. Suzuki also noted that an extension of the redemption period for JGBs would alter the market credibility of the instruments, pushing back against calls for a review on the matter from a senior politician.
• A slight firming of U.S. Tsys and the above mixture of headline flow seemed to support long end JGBs in the Tokyo afternoon.
• Looking ahead, the latest BoJ Tankan survey headlines the domestic docket on Wednesday, with BoJ Rinban operations also slated.