Cheaper, Sitting Just Of Worst Levels, As Market Adjusts To Tweaked YCC

In Tokyo afternoon trade, JGB futures are weaker, just off session lows, -61 compared to the settlement levels.

• In addition to retail sales that beat and industrial production that missed, housing starts data surprised to the downside with a print of -4.8% y/y in June versus +3.5% in May.
• Morgan Stanley expects “the 1y+ JGB index to extend by 0.003y in July, compared to an average month’s extension range of ~0.02-0.06y. A total of ~¥3 trillion of issuance will affect the extension and ¥3.03 trillion worth of JGBs will be reinvested.”
• The cash JGB curve has bear steepened with yields 0.8bp (1-year) to 10bp (30-year) higher in Tokyo afternoon trading as the market continues to adjust to Friday’s surprise decision to tweak YCC.
• The benchmark 10-year yield is 3.5bp higher at 0.603%. In line with the tweaked YCC, the BoJ announced bond-purchase operations of ¥300b of 5-to-10-year notes at market today.
• The swap curve also bear steepens with swap spreads tighter out to the 7-year wider beyond.
• Tomorrow the local calendar sees Jobless Rate and Jibun Bank PMI data along with 10-year supply.