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Bear-Steepening Continues, 10Y Almost 20bps Higher Than Wednesday’s Low

JGBS

In Tokyo morning trade, JGB futures are sharply lower again, -44 compared to settlement levels, despite a lower-than-expected final Q3 GDP print (-2.9% annualised q/q versus -2.0% est.) The market appears to have instead focused on the upside surprise in the GDP deflator, which rose to 5.3% y/y versus expectations of an unchanged 5.1%.

  • Meanwhile, the October Current Account printed a substantially larger than expected surplus at Y2582.8bn versus Y1689.31 est. and Y2723.6 prior. Bank Lending Incl Trusts printed 2.8% y/y versus a revised 2.7% prior.
  • Bloomberg reported that JGB futures are off to a soggy start on Friday with traders using the rollover into the March contract as a window to refresh bearish positions for an extended drive lower. Traders are emboldened by the flurry of BOJ speakers this week ahead of the next policy meeting in less than two weeks. (See link)
  • The cash JGB curve has extended yesterday’s bear-steepening in today’s session, with yields 1.3bps to 5.6bps higher. The benchmark 10-year yield is 5.0bps higher at .807% versus the recent low of 0.622% set on Wednesday.
  • The swaps curve has also bear-steepened, with rates 2-9bps higher. Swap spreads are wider.
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