Afternoon Re-Open Eyed After Matsuno Push Back Re: BoJ Accord Tweak

JGBs may be in for a volatile start to Tokyo afternoon trade after an extension of the early cheapening related to the previously outlined Kyodo source reports re: the potential for a tweak to the BoJ-government policy accord after BoJ Governor Kuroda departs in April (which was followed up by similar reports from RTRS). That left futures -20 at the lunch bell, while cash JGBs were 0.5-4.5bp cheaper, with the super-long end leading the weakness and 10-Year yields capped by the BoJ’s YCC settings. The majority of swap spreads across the curve were wider on the day, pointing to payside flows in swaps aiding the weakness in the wider JGB sphere.

• However, since the start of the Tokyo lunch break we have seen Japanese Chief Cabinet Secretary Matsuno play down the source reports, suggesting that the government has no plans to revise the joint accord held with the BoJ. This may provide a bid for the space in early afternoon trade.
• Details of the BoJ Rinban operations may provide further support to the bid, with offer to cover ratios below 2.00x seen across the Bank’s 1- to 25-Year purchases.
• We do note that core FI markets are cheaper vs. early Tokyo lunch break levels, owing to some weakness in ACGBs, which may provide some offset to the supportive factors.