Futures Erase Some Of Overnight Gains As Curve Steepens

JGB futures gave back a chunk of their overnight session gains as global core FI markets eased a little in early Tokyo trade, although the contract remained comfortably above neutral levels on the BoJ’s continued ultra-easy policy stance and market mechanism tweaks that look to ensure that the Bank can uphold the boundary located at the upper end of its of permitted 10-Year JGB yield range. The contract then stuck to a very tight range thereafter, looking through swings in wider markets. That leaves the contract +53 as we move towards the Tokyo close.

• Cash JGB trade sees most of the major benchmarks running cheaper on the day (to the tune of 0.5-3.5bp), with 10-Year JGB yields a touch below 0.24% and the curve bear steepening. 7s provide the exception to the trend, with the BoJ’s commitment to its ultra-easy policy settings at the backend of last week (coupled with the market-based policy tweaks we fleshed out earlier) supporting futures, with cash 7s “catching up” early this week.
• Weekend commentary saw both of the political parties that form Japan’s ruling coalition support the BoJ’s monetary policy settings, although the latest Nikkei survey revealed that 46% of the public would prefer a move away from the current ultra-loose monetary settings, while 36% of those surveyed favour the Bank’s current approach.
• Elsewhere, PM Kishida’s cabinet has seen a downtick in support in the latest round of opinion polls.
• Looking ahead, Tuesday will see the release of the outdated minutes from the BoJ’s April meeting, in addition to the latest scheduled round of BoJ Rinban operations (covering 1- to 3-, 5- to 10- & 25+-Year JGBS).