Confidence In BoJ Dovish Resolve Supports JGBs, But Spillover From Offshore Bites Into Gains

Benchmark JGB futures went bid from the off after Wednesday's boost to the sizes of BoJ bond-purchase operations across the 10-25 & 25+ Year baskets reinforced expectations that the central bank will stick with its ultra-loose monetary policy settings tomorrow. The contract for December delivery climbed to a session high of 148.75, before easing off into the Tokyo lunch break and extending its pullback thereafter. It last operates at 148.59, up 27 ticks versus prior settlement.

• Fresh pressure to JGB futures likely came from other core FI markets, with U.S. Tsy yields pausing recent declines. Resilience in e-mini futures and several major equity markets (albeit not in Japan) may have helped sap strength from core FI.
• Cash JGB yields are lower across the curve, save for 10s, which remain in the vicinity of the BoJ's 0.25% ceiling. 20s comfortably outperform, while 2s are strongest in the short end, aided by an auction of Nov '24 Notes today.
• 2-Year JGBs advanced after an auction of that tenor. The tail remained unchanged from the previous offering and the bid/cover ratio fell to 4.16x (prev. 4.78x), but the low price was higher than forecast in a BBG dealer poll. The yield on 2-Year JGBs remains under scrutiny after if flirted with positive territory last Friday.
• The widely watched Japan 10-Year swap rates extended the retreat from cyclical highs printed a few days back, reducing their premium to 10-Year JGB yield.