Resilience Evident

JGB futures have exhibited resilience when it comes to withstanding the wider pressures observed in core global FI markets. Participants never looked to force a challenge of overnight session lows, even with the likes of U.S. Tsys coming under pressure. That left the contract to operate around late overnight levels during the morning session, before a light uptick was seen in the afternoon, with the contract trading closer to unchanged levels ahead of the bell.

• The BoJ’s presence in the 10-Year zone of the curve is limiting the pressure in paper out to 10s/in futures, although the overnight downtick in futures applied some pressure to 7s, which underperform surrounding tenors (cheapening by ~1bp vs. 0.5bp in other tenors out to 10s). Meanwhile, the longer end of the JGB curve has provided some more notable weakening given the gyrations in wider core global FI markets since Thursday’s Tokyo close, with super-long JGBs cheapening by ~2.5bp on the day. The steepening of the curve is also facilitated by the relative lack of BoJ control further out the curve.
• Japanese officials (from both the government & BoJ) have added little fresh when it comes to discussions re: FX, with Finance Minister Suzuki confirming that Japan and the U.S. have agreed to uphold existing agreements re: FX, while he provided no comment on the prospect of FX intervention, noting that Japan will respond to FX moves with a sense of urgency. Source reports in the local media have indicated that discussions between Suzuki & U.S. counterpart Yellen were received positively by the U.S., providing some modest JPY strength, although the Japanese MoF once again provided no comment as to whether such discussions took place post-reports.