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Curve Flattens Post-U.S. CPI, Long End Looks Better For Domestic Investors

JGBS

JGB futures have ticked back towards session lows ahead of the Tokyo close, last printing +32 on the day (after surging in the overnight session in lieu of the softer than expected U.S. CPI reading), with news of China’s freshly-deployed optimised COVID prevention settings (an unwind of international travel bans and reduced quarantine time for international travellers) applying some modest pressure.

  • Cash JGBs have held on to the bulk of their early richening, running 1-8bp richer across the curve, with the super-long end leading, resulting in bull flattening. This comes as the wider international FX-hedged yield picture for Japanese investors indicates the potential for further onshore-based JGB long end demand.
  • Local headline flow was muted, with familiar overtures re: the FX market dominating.
  • The latest liquidity enhancement auction for off-the-run 5- to 15.5-Year JGB went well, as was expected, with firm spread dynamics providing a light post-auction bid for the space.
  • Looking ahead, the latest batch of BoJ Rinban operations headline Monday’s limited domestic docket.
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JGB futures have ticked back towards session lows ahead of the Tokyo close, last printing +32 on the day (after surging in the overnight session in lieu of the softer than expected U.S. CPI reading), with news of China’s freshly-deployed optimised COVID prevention settings (an unwind of international travel bans and reduced quarantine time for international travellers) applying some modest pressure.

  • Cash JGBs have held on to the bulk of their early richening, running 1-8bp richer across the curve, with the super-long end leading, resulting in bull flattening. This comes as the wider international FX-hedged yield picture for Japanese investors indicates the potential for further onshore-based JGB long end demand.
  • Local headline flow was muted, with familiar overtures re: the FX market dominating.
  • The latest liquidity enhancement auction for off-the-run 5- to 15.5-Year JGB went well, as was expected, with firm spread dynamics providing a light post-auction bid for the space.
  • Looking ahead, the latest batch of BoJ Rinban operations headline Monday’s limited domestic docket.