BoJ Speculation Weighs, 5-Year Auction Eyed

JGB futures hit the lunch bell -84, a little off of worst levels, after registering a fresh cycle low. A reminder that the next technical levels to watch come in at vol. band support, situated at 144.14 and 144.02, with the contract finding a low just above the former in the Tokyo morning.

• Cash JGBs were flat to 6bp cheaper, with 2s little changed, while the 5- to 7-Year zone came under the most pressure given the speculation on BoJ policy tweaks. 10s are still showing above the peak of the BoJ’s permitted YCC range, even after this morning’s unscheduled Rinban purchases. Swap spreads have pushed wider across the curve, as swap payside flow adds further pressure to JGBs.
• We have learnt that the Japanese government's top economic policy panel will invite eight economists, including an inflation expert, to its upcoming special sessions which will include discussions re: the country's long-term policies. A Minister was quick to note that the sessions are not meant to form a base to discuss the BoJ's exit strategy from its ultra-loose policy settings, nor to start discussions re: a new policy accord between the gov’t and the Bank.
• This afternoon’s 5-Year JGB supply will be closely watched, with poor digestion having the potential to ignite further weakness.