Futures Push Higher Again, Leaning On BoJ Collateral Operations

JGB futures extend higher into the Tokyo close after breaching last week’s high, with the contract now erasing the bulk of the cheapening observed since the BoJ’s surprise YCC tweak. Futures are also through their 6 Dec base, and now look to the Nov 16 high as the next area of meaningful resistance, +67 on the day.

• The major cash benchmarks are mixed, with the 3- to 10-Year zone running 1-6bp richer, led by 7s. While the super-long end struggled all day, with 30+-Year paper failing to get anywhere near unchanged, sitting 1.5-3.5bp cheaper into the bell.
• Swaps rates were lower as that curve flattened, shedding 1-2bp across the major benchmarks.
• The presence of the BoJ’s initial 5-Year offering through its Funds-Supplying Operations was the catalyst for the bid in the belly to intermediate area of space, There was good demand at the operations, with over Y3tn of bids tendered and ~Y1tn allotted (as prescribed in the announcement of the ops).
• The weekend saw Japanese PM Kishida note that he will nominate a new BoJ Governor next month, while he stressed that it is too early to discuss a potential revision to the government-BoJ accord.
• The minutes of the Dec BoJ meeting, which saw the surprise YCC tweak, revealed that there was a 30 to 40-minute recess of the meeting, at the request of a government official (unusual, but not unprecedented).
• Flash PMI data and a liquidity enhancement auction for off-the-run 1- to 5-Year JGBs headline tomorrow’s domestic calendar.