Futures Gap Lower On Nikkei Newspaper BOJ YCC Tweak Story

In Tokyo morning trade, JGB futures have gapped lower, -13 compared to settlement levels and the overnight session closing level on Friday. This move can be largely attributed to a Sunday article in the Nikkei newspaper that reported BOJ officials are pondering whether to tweak the settings of the yield-curve control program as domestic long-term interest rates float higher in tandem with those in the US. The article didn’t say where it obtained the information. (See Bloomberg link)

• The local calendar is empty today.
• According to MNI’s technicals team, recent weakness in JGB futures has put the contract further through support at 145.49, the Aug 17 low. A continuation lower and the clear break of this area confirm a resumption of the medium-term downtrend and pave the way for weakness towards 144.15, the Jan 13 low and major support. On the upside, clearance of 146.41, the Sep 4 high would instead highlight a base and a possible short-term reversal.
• The cash JGB curve has bear-steepened, with yields 0.4bp to 4.2bps higher. The benchmark 10-year yield is 1.8bps higher at 0.860%, above BOJ's YCC soft limit of 0.50% but below its hard limit of 1.0%. It is also just shy of the fresh cycle high of 0.863% set today.
• The swaps curve has also bear-steepened, with rates 0.3bp to 3.1bps higher. Swap spreads are narrower across maturities.