Fresh Cycle Highs For Super-Long End Yields

JGB futures attempted to pull higher in early Tokyo trade, perhaps with domestic participants less willing to push the envelope when it comes to testing the BoJ’s resolve re: YCC settings when compared to their international counterparts (a theme that was evident in the mid-June test of the Bank).

• Still, the initial, modest bid has faded, with the contract last dealing back around late overnight levels.
• Cash JGBS run 0.5-2.5bp cheaper across the curve, with 30s presenting the weakest point and 10-Year JGB yields showing a little above the BoJ’s YCC limit (although we do not know if any trades have crossed there), which could trigger an off-schedule round of BoJ purchases.
• Note that 20+-Year benchmarks have registered fresh cycle highs in yield terms this morning, with the spill over from Tuesday’s cheapening in wider core global FI markets in the driving seat. Some participants have suggested that the aforementioned potential round of off schedule BoJ purchases could come in this area of the curve, which is subject to less control than paper out to 10s given the nature of the BoJ’s YCC mechanism and Rinban purchases.