Curve Bull Flattens On Touted Shorter-Dated “Bridge Bond” Focus

Marginally weaker than expected Tokyo CPI data, BoJ Governor Kuroda’s continued focus on generating sustainable wage growth and the aforementioned Sino-U.S. tensions re: Taiwan provided a modest bid for the JGB space during the Tokyo morning.

• The contract sits a touch off of best levels ahead of the close, +4, with a lack of meaningful catalysts apparent during afternoon trade.
• Still, the contract has more than reversed overnight session losses, while the wider cash curve bull flattened as the major benchmarks richened by 0.5-3.0bp. 20s outperformed after the sector led yesterday’s cheapening.
• The outperformance in the super long end was aided by reports that Japan is looking to finance its planned increase in defence spending via “bridge bonds,” with a focus on relatively short-term debt and clear stipulations re: financing methods in an effort to play down fiscal worries.
• Looking ahead, the latest round of BoJ Rinban operations headline the domestic docket on Monday.