Futures Flat At Lunch, Rinban Operations Show Mixed Results

At the Tokyo lunch break, JGB futures are flat to the settlement levels after trading in a relatively narrow range in the morning session.

• There hasn’t been much in the way of domestic drivers to flag, outside of the previously outlined June PPI data that surprised on the downside but generated little market reaction.
• Bloomberg reports that the IMF said Japan’s inflation risks are on the upside, and it recommends the Bank of Japan to be flexible and perhaps move away from its yield curve control program. While the IMF has called for flexibility in Japan’s monetary policy for some time, the remarks Tuesday appear a tad stronger than before. (See link)
• Cash JGBs are dealing flat to 0.6bp cheaper across benchmarks beyond the 1-year zone. The benchmark 10-year yield is 0.4bp higher at 0.470%%, below the BoJ's YCC limit of 0.50%.
• This morning’s BoJ Rinban operations showed mixed results with positive spreads but slightly lower cover ratios out to 25-year JGBs (3-5-year: 2.19x, 5-10-year: 1.56x and 10-25-year: 1.41x). The cover for 25-year+ rose from 1.70x to 1.96x. Overall, today’s operations may generate some slight pressure, particularly for longer dated JGBs, in early rounds of the Tokyo afternoon session.
• The swap curve has bear steepened with rates flat to 0.8bp higher and swap spreads wider.