10-Year Supply Goes Well, Swap Flows Aid Curve Steepening

JGB futures have stuck to a much tighter range than their global peers, operating -8 ahead of the Tokyo close, largely in line with late overnight session levels.

• 10s outperformed on the curve all day, even ahead of today’s 10-Year JGB auction, representing the only point on the cash JGB curve that is firmer (to the tune of ~1bp), while the remaining benchmarks run little changed to 3.5bp cheaper, with the super-long end leading the weakness, once again aided by payside swap flow as 20+-Year swap spreads widen.
• In terms of auction specifics, 10-Year supply went well, with the low price matching wider expectations (as proxied by the BBG dealer poll), as the tail held narrow and the cover ratio moved further above the 6-auction average. As we flagged in our preview, the BoJ’s defence of its YCC parameters and the short base of the international investor sphere likely provided 2 major sources of demand.
• Slightly softer than expected domestic wage data failed to impact the space.
• In domestic news, former BoJ chief economist Seisaku Kameda suggested that inflationary impulses will be stronger and longer lasting than the BoJ currently envisages, which will likely result in a markup of its inflation expectations when it convenes later this month.
• BoJ Rinban operations headline domestic matters tomorrow.