Futures Pare Overnight Losses In Early Tokyo Trade

JGB futures pared overnight losses in early Tokyo trade, -17 compared to settlement levels, after the monetary base declined 1.3% y/y and the BoJ Minutes from the MPM were released. Given last week’s YCC tweak by the BoJ, the minutes are likely to have a less-than-normal impact on the markets.

• Bloomberg believes aggressive traders will be constructing various scenarios for when the BOJ is likely to buy bonds again to smooth secondary markets. If bond yields grind higher in an orderly fashion that would suggest 0.7% is the next threshold, after this week’s intervention at 0.6%. But if the influence of global debt markets triggers a swift selloff in Japan, that could prompt the BOJ to buy bonds near 0.65%. (See link)
• Cash JGBs have experienced a subdued open with yield changes bounded by -0.3bp (3-year) and +0.7bp (20-year). The benchmark 10-year yield is -0.3bp at 0.604%, above the BoJ's YCC old limit of 0.50% but below its new hard limit of 1.0%.
• Swap rates are mixed with the belly of the curve outperforming. Rates are 0.5bp lower (7-year) to 0.4bp higher (40-year). Swap spreads are tighter.