Curve Twist Steepens, Various Inputs Eyed

JGB futures bounced from the lows witnessed in the final overnight session of ’22 as Tokyo returned from the NY break, +25 on the day into the bell.

• Futures have drawn support from the bid observed in the global core FI space over the break, while cash JGB trade was a little more mixed.
• The major JGB benchmarks run 1bp richer to 5bp cheaper, pivoting around 10s.
• The early twist steepening of the curve became a little more pronounced after the BoJ outlined another round of unscheduled Rinban operations and 1- to 5-Year fixed rate purchases, with a reduction in the 10- to 25-Year purchases and lack 25+-Year purchases providing weight (upticks in the offer/cover ratios provided little impetus given the reductions in 1- to 3- & 5- to 25-Year purchase sizes).
• The previously outlined hawkish press speculation surrounding the BoJ (covering possible inflation forecast tweaks and the potential successor to Governor Kuroda) may have weighed on the longer end of the curve.
• 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.
• Policymaker rhetoric failed to impact the space, with Kuroda once again pointing to the need for continued easing, while PM Kishida highlighted the need for real wage growth.
• Looking ahead 10-Year JGB supply headlines the domestic docket on Thursday.