A Firm End To The Week

JGB futures initially eased from late overnight levels on the back of slightly firmer than expected national core CPI data, although the move back from lows didn’t take long, probably given the focus on previous BoJ rhetoric, which foretold such a move (in rough absolute terms), while the Bank has played down the need to tweak its policy settings given the cost-push nature of the currently inflationary impulse (in addition to technicalities surrounding mobile phone charges). The BoJ remains focused on facilitating a rebound in economic growth and fostering an environment that will generate sustained underlying inflationary pressure.

• Futures then nudged higher through the remainder of the morning, before the previously outlined uptick from session cheaps for U.S Tsys provided support in the afternoon.
• A reminder that the BoJ’s continued presence in the market as it enforces its YCC conditions is seemingly limiting any sell offs in paper out to 10s at present.
• The latest round of 20-Year JGB supply came in on the firmer side and likely aided the bid further, with the cover ratio moving higher (topping the 6-auction average of 3.34x), price tail narrowing to a much more normal level vs. what was seen at the previous 20-Year auction and low price topping wider expectations. Stabilisation of the wider core global FI space, short covering and lifer demand likely resulted in the smooth passage of supply (factors we flagged in our auction preview).
• JGB futures last print +22, just off best levels, with cash JGBs running little changed to ~2.5bp firmer. 7s and the super-long end lead the bid, with 7s benefitting from the move in futures and the super-long end rallying in the wake of supply.
• In terms of flows, note that BBG headlines covering the monthly JSDA data pointed to foreign funds selling the largest monthly amount of 10-Year JGBs on record in April, while major domestic banks bought the largest amount of 10-Year JGBs since ’14 during the month, once again, per BBG headlines.
• Looking ahead to next week, Tokyo CPI headlines the domestic docket (Friday), with 40-Year JGB supply (Thursday) and the usual BoJ Rinban & fixed rate operations also due.