Futures Continue Move Lower Overnight As BoJ Speculation Dominates Global Impulses

JGB futures failed to latch onto the wider bid in core global FI markets during overnight dealing, with international participants seemingly reacting to Thursday’s Yomiuri report which pointed to a review of the side effects of the BoJ’s ultra-loose policy settings at next week’s monetary policy meeting, while a technical break of the previous cycle low in the contract added further fuel to the bearish impulse.

• The kink in the 10-Year zone of the curve remains evident, with 7s yielding a little above 10s, providing a natural point of attack for speculators into next week’s BoJ.
• Expect stepped up/unscheduled BoJ purchase operations at some point today given this dynamic, although the presence of 5-Year JGB supply probably complicates the timing of such moves.
• Some BoJ watchers have started to tout the potential for a removal of the Bank’s YCC programme as soon as next week, although this is by no means a consensus view.
• Note that we haven’t seen much in the way of movement in JSCC/LCH swap spreads in recent sessions.