Cash Curve Twist-Flattens As Market Reacts To Hawkish BoJ & Dovish FOMC

At the Tokyo lunch break, JGB futures remain sharply higher, +30 compared to the settlement levels.

• According to MNI’s technicals team, JGB futures underwent volatile trade Wednesday on the back of the BoJ decision but recouped lost ground following the Fed. The price action across Thursday & Friday last week snaps the losing streak off the mid-July highs and eyes the 50-dma resistance above at 143.07. Clearance here would shift the near-term outlook more positively, and eye 143.57 as the next key level. Last week’s lows of 142.42 mark first support.
• Offshore investors were meaningful buyers of local bonds last week, with nearly ¥1200bn in net inflows. This was the largest weekly inflow since the middle of May. It doesn't arrest the negative trend in terms of outflows seen since March though.
• In terms of Japan's outbound flows, we saw another -¥700.5bn in net selling of offshore bonds. This keeps the trend in place of net outflows, which fits with the unattractive investment proposition of offshore bonds (on a hedged FX basis) for local investors.
• Cash US tsys are ~2bps cheaper in today’s Asia-Pac session, partially reversing some of yesterday’s post-FOMC strength.
• The cash JGB curve has twist-flattened, pivoting at the 5s, with yields 2bps higher to 3bps lower.
• The swaps curve has bull-flattened, with rates flat to 4bps lower.