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Bear-Steepening After A Perceived Hawkish Shift By The BoJ

JGBS

At the Tokyo lunch break, JGB futures are holding sharply lower, -84 compared to the settlement levels, as traders judged comments from the BoJ on Tuesday to be hawkish and brought forward their bets for an interest rate hike in the coming months.

  • There hasn’t been much in the way of domestic drivers to flag. December’s Trade Balance came in better than expected at Y62.1bn versus expectations of -Y122.6bn, while Jibun Bank PMIs for January (preliminary) were stronger across the board.
  • The cash JGB curve has sharply bear-steepened, with yields 1-10bps higher. The benchmark 10-year yield is 5.3bps higher at 0.724% versus the Nov-Dec rally low of 0.555%. The 20-year is the underperformer, with the 40-year yield 5.6bps higher at 2.081% ahead of tomorrow’s supply.
  • Results of today’s BoJ Rinban Operations covering 1-25-year JGBs are due shortly.
  • Swaps curve has also bear-steepened, with rates 1-5bps higher. Swap spreads are mixed.
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