Firmer, Belly Leads The Bid

JGBs firmed as the morning wore on, aided by the presence of the BoJ’s pre-announced but unscheduled Rinban purchases, with some pre-BoJ meeting short trimming probably helping the general direction of travel well.

• We also suggest there was some support from the previously alluded to comment that we flagged pre-open, that came via a Nikkei report, suggesting that “many in the central bank believe that it should take a wait-and-see approach on policy changes” ahead of this week’s monetary policy meeting.
• Futures hit lunch bell +23, a little shy of their session peak, while cash JGBs run flat to 6.5bp richer, with 7s leading owing to the bid in futures. 10s continue to operate above the BoJ’s permitted YCC cap, lagging the bid on the wider curve.
• Swap spreads are generally tighter, with benchmarks on that curve running ~5bp lower in a parallel shift.
• Offer/cover ratios observed in the recently released details of the BoJ Rinban operations were contained, printing at 1.8-2.7x, meaning that it is unlikely that we will see some pressure from that input.