[MARKET ANALYSIS] JGBs lead after Katayama commentary, fixed generally firmer as energy dips

Overall, fixed benchmarks are firmer in reaction to the modest but increasing pullback seen in the energy space overnight and as JGBs lead on domestic updates.
JGBs got to a high of 127.76 in the European morning, continuing the overnight rally after comments from Japanese Finance Minister Katayama, who said that pension funds should be encouraged to invest more in the domestic market. Commentary that underpinned Japanese assets across the board, and sent the 10yr yield lower by around 16bps on the day, down to 2.71% and now essentially flat on the month, reversing from the 2.89% YTD high.
Commentary that also lifted peers at the time. While the shift would be a positive for the Japanese market generally, there are a few unknowns, most pertinently being whether Katayama can make such an announcement as the GPIF is under the Labour Ministry, not the Finance Ministry. As such, for FX in particular, there is an argument that Katayama’s commentary is conducting another form of jawboning, and therefore the move may well fade in the days/weeks ahead, unless a relevant official to the GPIF (i.e. Ueno, or PM Takaichi) backs the shift publicly.
USTs got to a 109-12 peak in the early morning, as energy hit a low and the JGB-driven move topped out. Since, newsflow has been particularly light with the market essentially waiting for a resumption of negotiations or strikes, though as is often the case we might not get clarity on the next step until the weekend.
Bunds followed suit, peaking at 125.74 with gains of around 35 ticks. Specifics limited. Continued focus on the EU funding plans, and the lack of agreement on the next 7yr plan is arguably supporting EGBs for net-contributing nations, as no agreement would see the current EUR 1.4tln figure continue as opposed to the planned uplift to EUR 2tln.
Gilts opened lower by a few ticks, before then swiftly moving above the 88.00 mark to a 88.07 peak, in-fitting with the above, action that leaves it just above Wednesday’s high but someway shy of the 88.93 opening level at the start of the week. Last night the first tally was done for the Labour nominations, and while the count theoretically leaves space for a challenger it is not realistic and therefore Burnham is now formally, for all intents and purposes, the incoming UK PM.