Curve Twist Steepens, Futures Bounce

JGB futures bounce from the lows witnessed in the final overnight session of ’22, and now operate close to levels seen at the end of the final Tokyo session of last year, +25 on the day.

• Futures have drawn support from the bid observed in the global core FI space over that horizon, while cash JGB trade is a little more mixed, adjusting for the weakness in cash Tsys into NY and the subsequent bid in core global FI since. That leaves the major JGB benchmarks running 1.5bp richer to 1.5bp cheaper. Shorter dated paper is little changed, while 7s outperform and 10+-Year paper cheapens.
• 10-Year JGBs sit ~6bp below the BoJ’s YCC limit, last printing around 0.44%.
• The previously outlined hawkish press speculation surrounding the BoJ (covering possible inflation forecast tweaks and the potential successor to Governor Kuroda) may also be providing some pressure for the longer end of the curve.
• It is also worth noting, as we flagged elsewhere, Japanese MoF data covering the week ending 23 December revealed the largest ever round of net weekly sales of Japanese bonds on the part of foreign investors (Y4.8623tn), with the BoJ’s surprise tweak to its YCC settings facilitating those particular flows.