Futures Outperform On The Curve

JGB futures saw a brief and shallow look below overnight lows at the Tokyo re-open as participants reacted to Tuesday’s wider core FI market dynamics, before a slightly defensive feel and bid for wider core FI dragged the contract higher. The bid has stuck during the Tokyo afternoon, with the contract hovering around unchanged levels.

• Cash JGBS are little changed to ~1bp cheaper across the curve, with the 7- to 10-Year zone presenting the firmest point, which is likely linked to the bid in futures and the proximity of 10-Year yields to the upper limit of the BoJ’s permitted trading band (last dealing at ~0.245%).
• Note that preliminary Q1 Japanese GDP data wasn’t quite as soft as feared, with the saving grace coming as private consumption topped exp. (albeit only printing at flat levels in Q/Q terms).
• Ex-BoJ board member Sakurai spoke with BBG, suggesting that “the BoJ may widen its yield target band as early as this autumn if the economy is on track for a recovery from the pandemic… The most important factor is how the real economy develops…The BOJ can consider a next phase if a recovery continues even gradually,” as long as inflation stays above 1%.”
• The low price observed at the latest round of 5-Year JGB supply met wider expectations (as proxied by the BBG dealer poll), with the price tail holding tight. However, the cover ratio nudged lower, below the 6-auction average. The auction provided a smooth enough round of digestion.
• Looking ahead, Japan’s monthly trade and core machine orders data is due on Thursday, as are BoJ Rinban operations covering 1- to 3-, 5- to 10- & 25+-Year JGBs.