Comfortably Richer But Intermediates Off Best Levels

As mentioned elsewhere, JGBs in the intermediate zone of the curve have pulled away from best levels after 10-Year swap rates found an intraday base just above the BoJ’s YCC cap (where a low of 0.516% was registered this morning). This probably isn’t a coincidence, as 10-Year swaps are viewed as a bit of a fair value play re: JGBs given the relative lack of BoJ control on that market.

• This has seen 10-Year JGB yields pull away from multi-month lows, but the benchmark still operates below the BoJ’s prior YCC cap (0.25%). A reduction in short positioning seems to be a clear factor in the recent round of richening in the 7- to 10-Year sector, but does leave the space susceptible to pressure if fresh BoJ YCC speculation is triggered by a hawkish repricing of the path of global central banks.
• Cash JGBs sit 1-19bp richer across the curve, with bull flattening in play after the early outperformance of 7s and 10s gave way. Swaps spreads are tighter out to 5s, but wider beyond there.
• Futures are still over 100 pips firmer vs. yesterday’s settlement level but sit 100 pips off their overnight/early Tokyo high.
• 5-Year JGB supply headlines the local docket this afternoon.