Flat To Richer, Futures Consolidate Overnight Gains

A sedate round of JGB trade, particularly by recent standards, was observed on Wednesday.

• JGB futures oscillated either side of late overnight levels during the Tokyo session, dealing +15 into the close, as bulls look to consolidate the bounce from Tuesday’s late Tokyo lows.
• Meanwhile, cash JGBs run flat to ~4bp richer as the curve flattens, while 10-Year JGB yields operate just below the upper limit of the BoJ’s YCC parameters. Be on the lookout for unscheduled Rinban purchases covering the 5- to 10-Year zone of the curve if a more meaningful test of the BoJ’s policy settings plays out in the coming days.
• The swap curve flattened, with benchmark rates there running flat to 3.5bp lower, albeit lagging the moves in JGBs, as swap spreads widened.
• Local headline flow was limited, which left participants to adjust to the broader market moves observed since yesterday’s Tokyo close.
• Looking ahead, Thursday’s local docket consists of 10-Year JGB supply and lower tier data, which will leave auction dynamics and post-FOMC adjustments at the fore.