Futures Pare Losses At Tokyo Lunch Break, 2-Year Supply Due

At the Tokyo lunch break, JGB futures have pared overnight losses to be -8 compared to the settlement levels.

• There hasn’t been much in the way of domestic drivers to flag, outside of the previously outlined international investment flow data that showed offshore investors were sharp sellers of local bonds.
• Cash JGBs are dealing slightly mixed at the Tokyo lunch break with yield changes bounded by -2.0bp (40-year) and +0.1bp (2-year and 7-year). The benchmark 10-year yield is 0.1bp lower. higher at 0.454%, below the BoJ's YCC limit of 0.50%.
• The 2-year is underperforming on the curve at -0.038% ahead of today’s auction. While the outright yield is higher than the level prevailing at last month’s auction, uncertainty surrounding the BoJ policy outlook has increased.
• Our analysis of the BoJ aligns with the prevailing consensus, which anticipates that the current easing policies will be maintained during this week's meeting. Market expectations also appear fairly low, with the 10yr JGB yield below the upper bound of the -/+0.50% permissible range, while the 10-yr Swap/JGB spread (which can be thought of as a proxy for BoJ YCC tweak speculation) sits around +15bps currently, not too far off multi-month lows going back to last August 2022. (See MNI BoJ Preview here)
• The swaps curve has bull flattened with rates flat to 1.5bp lower. Swap spreads are mixed.