Curve Twist Steepens, 30-Year Auction Only Generates Tepid Demand

JGB futures ticked higher during the Tokyo session, more than unwinding overnight weakness, leaving the contract +4 ahead of the close, just shy of best levels. A bid in wider core global FI markets provided further support in the Tokyo afternoon after a morning uptick.

• Wider cash JGBs run 1.5bp richer to 2bp cheaper, pivoting around 10s as the curve twist steepens. 10s continue to operate effectively on the upper boundary of the range allowed under the BoJ’s YCC parameters (0.50%).
• Weakness in the longer end seemed to be related to the weakness seen in core global FI markets on Monday, while the twist steepening felt a bit like a further unwind of hawkish flattener plays given a growing feel that there will not be a tweak deployed at this week’s BoJ monetary policy decision (Governor Kuroda’s final meeting atop the central bank).
• Elsewhere, 30-Year JGB supply saw a tepid reception, although there wasn’t much in the way of post-auction follow through in price action.
• Current account data and BoJ Rinban operations headline the domestic docket tomorrow.