BoJ Speculation Weighs, Futures Near Key Support

The JGB curve twist flattens, with paper out to 20s pressured by the previously alluded to Yomiuri source report which pointed to the BoJ conducting a review of the side effects of its ultra-loose policy settings at next week’s monetary policy meeting, fanning the flames of speculation re: a further BoJ policy tweak.

• That leaves the benchmarks in that zone of the curve running little changed to 2.5bp cheaper, with 7s leading the weakness and 10s limited by their proximity to the upper boundary of the BoJ’s YCC parameters. 30+-Year paper is little changed to 1bp richer, benefitting from a sticky bid in lieu of yesterday’s well-received round of 30-Year JGB supply.
• Futures print 45 ticks lower on the day, explaining the move in 7s on the curve, looking through initial technical support located at the Jan 2 low. Key technical support is seen nearby at the June 16 base and cycle low (145.05).
• Swap spreads are wider across the curve.
• Markets will be on the lookout for ad hoc BoJ purchases given the moves seen early today and continued pressure on the BoJ’s YCC settings. Look for off schedule fixed rate (the daily 5- to 10-Year purchases are scheduled as usual) and BoJ Rinban (1- to 3- & 5- to 25+-Year buying is scheduled) operations. We could also see upsized Rinban purchases.