Curve Steepens On Wider Weakness In Core Global FI Markets

JGB futures operate just above worst levels into the bell, -33 vs. Friday’s settlement, after Tokyo returned from an elongated weekend and reacted to the weakness witnessed in wider core global FI markets.

• Cash JGBs are flat to 7bp cheaper across the curve, with the super-long end leading the way lower owing to the relative lack of BoJ control in that area of the curve.
• 7s underperform surrounding paper owing to the weakness in futures, while 10s are little changed as they operate just shy of the BoJ’s yield cap.
• An FT interview with PM Kishida showed the leader’s support for the BoJ’s ultra-loose policy settings, even as the JPY tumbles, while Kishida indicated that he intends to allow Governor Kuroda to serve his full term atop the BoJ (which expires in April ’23).
• A steady to lower round of offer/cover ratios in the BoJ Rinban operations covering 1- to 25-Year JGBs, coupled with the FT story, seemed to facilitate a very modest bid during the early rounds of Tokyo afternoon dealing before fresh weakness set in.
• Elsewhere, Japanese policymakers reiterated well-trodden verses surrounding the FX market, alongside suggestions that the U.S. has shown “a certain extent” of understanding re: Tokyo’s FX intervention in September.
• Looking ahead, 30-Year JGB supply headlines the domestic docket on Wednesday, with lower tier economic data also due.