JAPAN: Katayama: Total Bond Issuance This FY To Be Below Last Year

• RES 4: 94.24 1.618proj of the Sep 3 - 11 - 26 price swing  
• RES 3: 94.00 Round number resistance        
• RES 2: 93.95 1.500 proj of the Sep 3 - 11 - 26 price swing
• RES 1: 93.78 Intraday high  
• PRICE: 93.43 @ 08:02 BST Oct 22
• SUP 1: 93.17/92.07 High Oct 17 / Low Oct 15      
• SUP 2: 91.82 High Sep 24 and a recent breakout level 
• SUP 3: 91.65 20-day EMA
• SUP 4: 91.01 Low Oct 13    

A bull cycle in Gilt futures remains intact and today’s gap higher strengthens the bullish condition. The contract is through its recent high of 93.17, the Oct 17 high. This confirms a resumption of the uptrend and signals scope for an extension towards 93.95 next, a Fibonacci projection. Note that the contract is overbought, a pullback would allow this condition to unwind. Firm support to watch lies at 91.65, the 20-day EMA.

SFIG6 96.50/96.60/96.65/96.75c condor, bought for 1.75 in 5k.

The Gilt curve unsurprisingly bull steepens following the lower-than-expected UK CPI data, with 2-year yields down 7bps and 30-year yields down 4bps. Yields have moved away from opening lows during the first 20 minutes of Wednesdday trade.

• 10-year yields are down 6bps at 4.419%, after printing a 3.395% low. Yields have narrowed the gap to support at 4.363% (Apr 7 low), which remains intact for now. Clearance of this level would quickly expose trendline support drawn from the November 2022 low, coming in at 4.338% today.
• The 10-year Gilt Bund spread is 6bps tighter at 186bps. Initial support is the August 1 closing low of 184.5bps. Clearance of his level would expose the March 11 low at 177.5bps.
• There have been a couple of factors behind recent Gilt outperformance: Dovish UK labour market and inflation data, slightly better-than-expected September public sector finance figures, and reports that Chancellor Reeves may may increase fiscal headroom above the c. GBP10bln seen in the last two fiscal events.
• Some recent news on the fiscal front:
  • The Chancellor is looking at “extending the equivalent of employer national insurance contributions to partners, in a move which experts have estimated could affect around 200,000 people and raise £1.9bn” (FT)
  • “ The Treasury is expected to close a tax loophole that retailers have argued gives online giants such as Shein an unfair advantage over high street chains, as chancellor Rachel Reeves looks to shore up the public finances…..Currently overseas retailers are allowed to send small packages worth less than £135 to the UK without being charged import duties, a loophole that industry experts claim costs the exchequer up to £600mn a year” .(FT)
• Digestion of the inflation data, and the associated repricing of the near-term BOE rate path, will likely dictate the session ahead. Flash PMI data is due on Friday. 

Figure 1: 10-year Gilt Yields (Source: Bloomberg Finance L.P.)