Drifting Weaker, 20Y Supply Due, Report Flags A March End To NIRP

In Tokyo morning trade, JGB futures are weaker and at session lows, -14 compared to settlement levels.

• (RTRS) The BoJ is on track to end negative interest rates in coming months despite the country’s economy falling into recession, Reuters reports, citing unidentified people familiar with the bank’s thinking. Weak domestic demand means the BOJ may seek more clues on wage growth before acting.
• “It’s true domestic demand lacks momentum. But GDP is only among many data points the BOJ looks at,” Reuters quotes one person as saying.
• “What’s important is the economy’s broader trend and the outlook,” another is quoted as saying.
• Cash US tsys are dealing 2-3bps cheaper in today’s Asia-Pac session after yesterday’s holiday.
• Cash JGBs are modestly cheaper across benchmarks. The benchmark 10-year yield is 0.5bp higher at 0.740% versus the Nov-Dec rally low of 0.555%.
• The 20-year is 0.9bp higher at 1.527%, underperforming on the curve ahead of today’s 20-year supply. The current auction presents an outright yield that is around 15bps higher than the level observed in January but approximately 25bps lower than the cycle high set in late October.
• While an increase in demand might be expected in isolation, it is essential to consider both the BoJ policy outlook and the recent deterioration in sentiment towards longer-dated bonds globally.
• The swaps curve has slightly bear-steepened, with rates flat to 1bp higher. Swap spreads are mostly wider.