Futures Re-Test Session Highs On Upsized Rinban Ops

JGB futures climbed to 148.44 in morning trade, before unwinding early gains. The pullback was facilitated by a spillover from the ACGB space, where expectation-busting Australian CPI outturns generated a fresh selling impetus. The contract then bounced as the BoJ conducted a scheduled round of Rinban operations, increasing the size of purchases from the planned amounts. This resulted in a re-test of earlier session highs, with JBZ2 last seen at 148.43, up 43 ticks versus previous settlement.

• Upsized Rinban purchase offers came as part of the BoJ's efforts to enforce its 0.25% cap on 10-Year JGBs' permitted trading range. The move reaffirms the central bank's commitment to its YCC framework, ahead of this Friday's monetary policy review. Note that there hasn't been any notable pullback in cash 10-Year JGB yield, which remains in the vicinity of 0.25%.
• The broader JGB curve has shifted lower, with flattening evident amid clear long-end outperformance. Bulls steepening seems linked to the overnight move in U.S. Tsys, as underwhelming U.S. data prompted participants to rethink Fed rate-hike outlook.
• Japan 10-Year/30-Year yield spread extends its sharp pullback from cyclical highs printed at one point on Tuesday, while 7-Year/10-Year spread returns above zero, signalling a marginal easing of pressure on the BoJ's YCC framework.
• 10-Year swaps are also retreating from cycle highs, reducing their premium over the benchmark 10-Year JGB yield targeted by the YCC, which has attracted attention in the recent days.