Curve Twist Flattens, BoJ Defends Breach Of YCC Band

Pressure from the spill over stemming from Tuesday’s moves in wider core global FI markets lingered in the belly of the JGB curve, with limited reaction to the BoJ deploying an unscheduled round of Rinban purchases covering 5- to 25-Year paper as it looked to fend off the latest upside breach of its YCC band (which has lingered, although the 0.51% level has not been touched as of yet, with 10-Year JGB yields operating between there and 0.50% for almost all of the session, last printing in that range ahead of the close).

• Futures edged away from session lows alongside wider core global FI markets, before another modest uptick was seen after the Rinban purchases were announced. The contract is -13 at the bell, while wider cash JGBs were 1bp cheaper to 5bp richer as the curve twist flattened. There wasn’t an overt driver for the super-long end bid, with some pointing towards potential purchases from domestic life insurers (after they sold super-long paper in Jan) and/or BoJ YCC tweak speculation via flatteners.
• Details of the unscheduled Rinban ops revealed an uptick in cover ratios, although the offers that the operations attracted weren’t larger in nominal terms, with cover impacted by the downsizing of the operations vs. scheduled purchases.
• BoJ’s Tamura added little fresh to the policy debate.
• Marginally firmer than expected services PPI data will have added to the pressure in early Tokyo trade.
• JGBs will be closed on Thursday the country observes a national holiday (this may have triggered some short cover in futures into the close).