Cheaper After The Holiday, But Off Lows

JGB futures are a touch above worst levels, last -19 on the day. Meanwhile, cash JGBs sit 0.5-2.5bp cheaper across the curve, bear steepening.

• Tokyo participants played catch up after their three-day holiday, with firmer than expected Tokyo CPI data (largely driven by a waning impact of lower mobile phone costs and the well documented jump in energy prices) also factoring into the weakness that was observed. Re: the latter, this will not impact BoJ policy, given the Bank’s continue focus on a lack of demand-pull inflation.
• Payside flows in swaps also seemed to help the weakness, with 5+-Year swap spreads wider on the day.
• The BoJ continues to offer fixed rate operations on a daily basis as it looks to hammer home its commitment to enforcing the upper end of its permitted 10-Year JGB yield trading band. Note that 10-Year JGB yields sit at ~0.24%, 1bp shy of the BoJ’s YCC upper limit.
• Off-the-run supply saw the spreads widen a touch via the prior 1- to 5-Year liquidity enhancement auction, while the cover ratio ticked higher. There was nothing in the way of meaningful reaction post-supply, with the stabilisation away from lows in wider core FI markets helping JGBs find a bit of a base after the Tokyo lunch break.
• Domestic news flow focused on the further wind back of COVID-related border restrictions.
• Looking ahead, wage data headlines the domestic docket on Monday, with the latest round of BoJ Rinban operations and outdated meeting minutes from the Bank’s March MPM also slated.