A Little Steeper Ahead Of Mid-Week Break

JGB futures meandered through Tokyo trade, with a lack of meaningful headline flow apparent, leaving the contract -10 into the bell, consolidating most of its overnight losses.

• Cash JGBs sit little changed to 2bp cheaper, with the long end edging away from worst levels. The steepening impulse may have been a product of some jitters ahead of Friday’s 40-Year JGB supply, with tomorrow’s holiday not aiding liquidity.
• Local news flow was light, with Chief Cabinet Secretary Matsuno playing down news reports which pointed to the likelihood of a fairly imminent cabinet reshuffle from PM Kishida, given the recent headwinds for his approval ratings/loss of 3 ministers.
• Elsewhere, Kishida provided familiar tones re: the BoJ & FX markets, while noting that pay rises shouldn’t be outstripped by inflation.
• Spreads tightened and the cover ratio jumped at the latest liquidity auction covering off-the-run 1- to 5-Year JGBs. Offshore participants perhaps took advantage of x-ccy basis swap related yield pickups, while domestic names may have looked to the BoJ’s on hold stance and relative stability of this area of the curve to park any excess cash, given continued market volatility and elevated FX-hedging costs, which renders many offshore bond investments unviable.
• As mentioned above, tomorrow is a national holiday in Japan, which will result in the closure of the country’s financial markets.