Eyes On 10s

A pretty sedate morning session for JGBs saw futures tick lower, but hold comfortably within their overnight session range, hitting the lunch bell -5. Cash trade saw the curve twist steepen, with paper out to 3s running ~0.5bp richer, while paper out to 30s was ~0.5bp cheaper, with 40s being the notable underperformer, cheapening by 1.5bp.

• Note that 10-Year JGB yields have now crossed above the 23bp trigger point that saw the BoJ conduct fixed rate operations back in February, as it preemptively defended the upper boundary of its -/+25bp permitted trading band. It will be interesting to see if we manage to move beyond this point, with a close at or above 23bp having the potential to trigger similar BoJ action (note that BoJ Governor Kuroda has previously flagged the importance of these operations when it comes to enfocing the Bank’s monetary policy). A notable shunt higher could trigger an in-session announcement from the BoJ.
• BoJ dove Kataoka failed to provide anything in the way of fresh insight, sticking to his usual reflationist rhetoric.
• This afternoon will bring the latest liquidity enhancement auction for off-the-run 1- to 5-Year JGBs.