Curve Continues To Register Fresh Multi-Year Steeps

Just to highlight that the long end of the JGB curve hasn’t been able to escape from the broader pressure witnessed in global core FI markets.

• A quick reminder that 10-Year JGB yields are of course restricted by the 0.25% upper limit of the BoJ’s permitted trading band, which the Bank stepped in to enforce at the start of this week (pre-announcing the fixed rate operation covering 10-Year JGBs on Thursday of last week, as 10-Year JGB yields crossed above the 0.23% mark).
• This also limits yields in sub-10-Year maturities, promoting curve steepening.
• The likes of the 5-/20-Year, 5-/30-Year and 5-/40-Year JGB yield spreads have moved to the steepest levels observed since late ‘19/early ’19 on the back of the previously outlined dynamic.
• The steepening has taken place even with several of the notable Japanese life insurers pointing to an interest in lifting their super-long JGB exposure via the most recent round of semi-annual investment intention releases.
• The BoJ will not have an issue with a steeper curve, as it promotes the financial health of life insurers and pension funds (as Governor Kuroda has noted in several recent addresses).
• As such, global market gyrations will likely remain at the core when it comes to the direction of these spreads, at least in the medium term.

Fig. 1: 5-/20-Year, 5-/30-Year And 5-/40-Year JGB Yield Spreads (bp)

Source: MNI - Market News/Bloomberg