Futures Holding Richer At Lunch, BOJ Dep. Gov. Reiterates Cautious Line

At the Tokyo lunch break, JGB futures are holding richer, +34 compared to settlement levels, but off the session’s best levels.

• In an otherwise quiet calendar, BOJ Deputy Governor Himino said the central bank can make a smooth exit from monetary easing once sustainable 2% inflation is achieved, but it needs to keep policy loose for now. "The BOJ should carefully monitor the evolution of wages and prices, judge the timing of the exit and design its process," Himino said. (See Bloomberg link)
• The move away from the session’s best level for the futures contract can therefore be traced back to the 1-3bps cheapening in cash US tsys so far in today’s Asia-Pac session. After the strong rally overnight, local participants may be using it as an opportunity to square long positions ahead of Friday’s NFP data.
• The cash JGB curve has bull-flattened beyond the 1-year, with yields 0.1bp to 7.5bps lower. The benchmark 10-year yield is 3.7bps lower at 0.633%, close to the new low of 0.622% for the decline that started in early November.
• Swaps curve has bull-flattened too, with rates 0.1 to 3.8bps lower. Swap spreads are wider beyond the 4-year.