Futures Ease Off Highs, 10-Year Swap Rates Keep Soaring

JGB futures started on a firmer footing, running as high as to 148.05, but the initial buying impetus petered out. The contract eased off highs to last trade at 147.94, 9 ticks above previous settlement. The pullback was at odds with continued gains for T-Notes and Aussie bond futures, with the move roughly coinciding with a round of comments from FinMin Suzuki.

• Cash JGB yields are generally mixed, save for notable underperformance in the super-long sector. Particular weakness in 20-Year JGBs is spilling over into 30s and 40s, driving the overall steepening dynamic. 10-Year JGB yield keeps testing the upper end of its -/+0.25% trading band permitted by the BoJ, while 10-Year swap rates are touching levels last seen in late 2013, increasing their premium over the benchmark bonds.
• The latest speech from FinMin Suzuki reconstructed a familiar logic surrounding the division of labour between the MoF and BoJ, while reaffirming existing views on FX developments. The minister vowed to respect the central bank's independence as it's trying to achieve sustainable, wage-driven inflation. He noted that the MoF is in daily communication with the U.S. over market developments, despite earlier remarks from Tsy Sec Yellen, who said Japan did not notify the U.S. about any new FX interventions. Suzuki reiterated that officials are focusing on excessive volatility, while the exchange rate should be determined by the market, despite earlier conceding that the pass-through from currency depreciation to domestic price pressures is increasing.
• 10-Year JGBs still operates in the vicinity of the 0.25% yield ceiling set by the BoJ as part of its Yield Curve Control programme. A scheduled round of 3-25+ Year Rinban operations will be watched for any signs of escalation in YCC enforcement.
• Later this week, Tokyo CPI will cross the wires on Friday, just ahead of the announcement of the BoJ's monetary policy review.