Curve Twist Flattens

Core global FI markets have generally ticked away from session lows, with a similar dynamic observed in JGB futures as we approach the bell. The contract is -3, after more than reversing the modest overnight session uptick. Cash JGBs are 1bp cheaper to 3bp richer as the curve twist flattens.

• Mixed internals at the latest liquidity enhancement auction for off-the-run 15.5- to 39-Year JGBs applied pressure in the early part of the Tokyo afternoon (spread dynamics were firm, but the cover ratio was soft, probably owing to the flatness of the JGB curve). A recovery from session lows in Asia-Pac equities pressured JGBs earlier in the day.
• Elsewhere, support from the previously outlined North Korean missile launch and dovish rhetoric from BoJ Governor Ueda gave way as the tension surrounding the missile launch peeled off from extremes, with the projectiles avoiding Hokkaido. An uptick from session lows in equities also applied some light pressure to the space.
• In terms of specifics, Ueda pointed to a need to exercise more caution re: inflation undershooting the Bank’s goal than overshooting it on a sustainable basis, flagging differences between inflation in Japan vs. its major global peers. As mentioned above, this once again places Ueda on the dovish side of the broader spectrum, at least for now.
• Looking ahead, the latest BoJ Rinban operations headline the domestic docket on Friday.