Futures Holding Weaker, Narrow Range, Tokyo CPI The Data Highlight Next Week

JGB futures are sitting weaker, trading in a relatively narrow range in afternoon Tokyo trade, -20 versus settlement levels.

• Apart from the April CPI, which was in line with expectations and showed the highest annual core rate since the early 1980s, there have been few significant domestic factors worth noting. The presence of strong inflationary data may lead to speculation about potential upward revisions to the BOJ's price projections. This, in turn, could redirect attention to the possibility of a monetary policy adjustment that could have implications for the bond market.
• Cash JGBs are cheaper across the curve in afternoon trade, apart from the 2-year zone which is 0.3bp richer. Yields beyond the 2-year zone are flat to 2.0bp higher with the 7-year zone leading. The benchmark 10-year yield is 1.7bp higher at 0.399%, with the 40-year yield 1.7bp higher at 1.442% ahead of next week’s auction (May 25).
• Swap rates are higher with the curve steeper and swap spreads narrower except for the 3-5-year zone.
• The economic data calendar highlight will be the release of Tokyo CPI on Friday. Ahead of that will be the release of Machine Orders (mar), Jibun Bank PMIs (May P) and weekly Investment Security flow data (May 19).
• The MoF plans to sell 10-year index-linked JGBs on Tuesday and 40-year JGBs on Thursday.
• BoJ Rinban operations covering 1-25-year JGBs is slated for Wednesday.