Futures Off Lows, Swap Flows Aid Stabilisation

JGB futures have recovered from early session lows, alongside a stabilisation in U.S. Tsys, hitting the lunch bell -8, while cash JGBs are 1bp richer to 1bp cheaper, with 10s underperforming surrounding tenors. The swap curve has twist flattened (20+-Year rates are now lower on the day), with swap spreads little changed to tighter across the curve (the moves back from session highs in swaps, along with receiver-side flows in the super-long end, would have aided the stabilisation in JGBs).

• JGBs looked through comments from BoJ Governor Ueda. RTRS notes that (in answer to a question in his parliamentary address) Ueda said that the “central bank will respond appropriately, such as by raising interest rates, if faster-than-expected growth in inflation and wages warrant tightening monetary policy. At present, however, the BOJ considers it appropriate to maintain its ultra-easy monetary policy, including yield curve control, to sustainably and stably achieve its 2% inflation target.” The initial lines were situational, as opposed to an apparent likelihood, with Ueda also reaffirming the Bank’s well-known views on inflation. Ueda stressed that tightening now could result in a “grave” situation.
• Elsewhere, Finance Minister Suzuki noted that there may be some movements in BoJ policy in the future, which would pose challenges re: maintaining current debt issuance levels. On that front, we also saw a senior MoF official note that Japan will strive to keep debt issuance costs at low levels, reacting to any future BoJ policy moves via maturity alteration and the tweaks to the distribution of JGB issuance.