US TSY FLOWS: Block Sell: FVM5

At the Tokyo lunch break, JGB futures are stronger, +8 compared to settlement levels, after reversing overnight weakness.

• Outside of the previously outlined domestic data drop, there hasn't been much by way of domestic drivers to flag.
• “President Trump's latest criticism about a weak yen may be a good opportunity for Japan to think more seriously about how to fix the excessive depreciation of the yen, which has caused import-price inflation, says SMBC Nikko Securities strategist Makoto Noji.” (per BBG)
• Cash US tsys are 1-3bps richer, with a steepening bias, in today’s Asia-Pac session after yesterday’s solid gains.
• Cash JGBs are flat to 3bps richer across benchmarks, with a flattening bias. The benchmark 10-year yield is 1.2bps lower at 1.402% ahead of today’s supply.
• This month, the 10-year auction offers an outright yield 10-15bps higher than last month but 7bps lower than its cyclical high of 1.466%. Additionally, the yield curve between 2- and 10-year bonds has steepened slightly compared to the prior month.
• Today’s auction is also likely to be supported by an improvement in sentiment toward global long-end bonds over the past two months. For instance, the US 10-year yield is roughly 65bps lower than its early January high.
• Swap rates are 1-3bps lower, with a flatter curve. Swap spreads are mostly tighter.

The Japanese Ministry of Finance (MoF) will today sell Y2.6tn of 10-Year JGBs. This month, the 10-year auction offers an outright yield 10-15bps higher than last month but 7bps lower than its cyclical high of 1.466%. 

• Additionally, the yield curve between 2- and 10-year bonds has steepened slightly compared to the prior month.
• Today’s auction is also likely to be supported by an improvement in sentiment toward global long-end bonds over the past two months. For instance, the US 10-year yield is roughly 65bps lower than its early January high.
• The relative affordability of 10-year JGBs versus futures— gauged by the 7- to 10-year spread — sits little changed relative to last month, after bouncing off the lower end of its range over the past year during the month.
• Amid this backdrop, it will be interesting to see if the current 10-year yield generates sufficient demand at today’s auction.
• Results are due at 0435 GMT / 1235 JT.

• Traditionally markets are quiet leading up to the National Party Congress and this year (despite the tariff threat impacting equity markets) bonds remain contained.
• The 10YR China bond future is trading flat today at 108.46, trending just below the 50-day EMA of 108.50 where it has been for several trading days.
• The 2YR China bond future is down by -0.03 at 102.64, trending back down towards the 200-day EMA of 102.63.
• Government bond yields are lower today with the CGB 10YR at 1.75% (-1bps).
• The CGB 10YR has traded in a tight range over the last week as bond markets await the outcome of the NPC with expectations growing for monetary policy and fiscal policy intervention to support economic growth.