Firmer, But Off Best Levels At The Bell

JGB futures extended on their overnight session gains during the Tokyo morning, with short covering perhaps playing a part.

• The contract has since eased back from best levels after gapping higher at the afternoon open, closing +49. Note that bulls failed to challenge the contract’s post-BoJ high of 146.74, with the vol. continuing.
• An early bull flattening impetus gave way to outperformance in 10s, with the major cash JGB benchmarks running flat to 8bp richer into the close.
• Low offer to cover ratios in the details of the latest round of BoJ Rinban purchases (after the Bank stuck with its focus on the 3- to 10-Year zone, as it looks to facilitate the functioning of its new YCC settings) helped underpin intermediates, resulting in the post-lunch break richening. Reports pointing to a downtick in JGB issuance in the next FY also helped that bid, before the aforementioned fade from best levels., which lacked a clear catalyst.
• Twist steepening on the swap curve may have also been a limiting factor, resulting in mixed swap spread performance (tighter to little changed in the front end of the curve, with a widening theme then extending the further out the curve you look).
• Tomorrow’s local docket is headlined by national CPI data and the outdated minutes from the BoJ’s Oct meeting.