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Futures Sharply Higher Ahead Of BoJ Policy Decision Tomorrow

JGBS

JGB futures are sharply higher and at session highs, +31 compared to settlement levels, ahead of the BoJ Policy Decision Tomorrow.

  • There hasn’t been much in the way of domestic data drivers to flag, outside of the previously outlined Core Machine Orders.
  • (Bloomberg) What the End of Japan’s Negative Interest Rates Means: QuickTake (See link)
  • (Bloomberg) Investors who have piled into JGB shorts this year could be forgiven for some nerves as the BoJ’s ¥3t of repo liquidity underscores the central bank’s determination to avoid sharp bond-market losses. (See link)
  • Regarding the decision tomorrow the primary question revolves around whether the central bank will immediately terminate its negative interest rate policy (NIRP) or postpone such action for another month and a half. While a move in March is not set in stone, we anticipate the BoJ to announce the attainment of its 2% price stability target and exit NIRP. (See MNI BoJ Preview here)
  • The cash JGB curve has bull-flattened beyond the 1-year (2.8bps cheaper), with yields 1-3bps lower. The benchmark 10-year yield is 2.5bps lower at 0.761% versus the year’s high of 0.801% set on Friday.
  • The swaps curve has also bull-flattened, with rates 1-5bps. Swap spreads are tighter.
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