Futures At Session Highs, 10/40Y Curve Steepens

JGB futures have extended morning strength, +16 compared to settlement levels, despite stronger-than-expected domestic activity data. There hasn’t been much in the way of domestic drivers to flag, outside of the previously outlined retail sales, industrial production and international investment flow data.

• (Bloomberg) BoJ Governor Ueda continued to prepare the ground for the nation’s first interest rate increase since 2007 with another round of comments that further built the case for a move in the spring while not ruling out the less probable option of a January hike. (See linkICYMI)
• Cash JGBs are dealing mixed, with the belly of the curve outperforming. The benchmark 10-year yield is 1.7bps lower at 0.594% versus the recent rally low of 0.555% (20 Dec).
• The 20-40-year bucket is however significantly cheaper, with yields 2-6bps higher led by the 40-year. Bloomberg reported that the spread between 10 and 30-year JGB yields is set to widen further in the weeks ahead after the BoJ announced it will reduce the frequency of purchases for the longest maturities. (See link)
• Swap rates are lower out to the 10-year and higher beyond. Swap spreads are wider out to the 10-year and narrower beyond.
• Tomorrow, the local calendar is empty.