Curve Steepens, Futures Bounce Aided By Stellar Demand At 10-Year Auction

Thursday saw mixed performance on the JGB curve, with futures off early Tokyo lows and the super-long end under some light pressure. The former is -6 at the close, while wider cash JGB benchmarks run 0.5bp richer to 3.0bp cheaper, with the curve pivoting around 7s, twist steepening. Swap rates are little changed to 2bp higher, resulting in wider swap spreads out to 10s, while super-long spreads are flat to narrower. 10-Year JGB yields are pressed up against the BoJ's YCC cap.

• Stellar demand at the latest 10-Year JGB auction was noted. It would seem that short covering needs, alongside diminished expectations for near-term monetary policy setting tweaks from the BoJ, yield levels testing the Bank’s YCC cap and short-term relative value appeal (generated from moves such as the recent cheapening on the 5-/10-/20-Year butterfly) were the dominant factors here. JGB futures ticked higher in the wake of the auction, pressing to fresh Tokyo session highs, before fading from best levels.
• The super-long end and swap rates seemed to be driven by the movement we have seen in core global FI markets since yesterday’s local close, while the early stabilisation in the belly is a little more up in the air when it comes to identifying a driver. The well-received 10-Year auction flagged above dd help the wider space away from session cheaps.
• Comments from BoJ board member Takata stuck with the central BoJ view.
• Tokyo CPI and labour market data headline the domestic docket on Friday.