Futures Sharply Lower On YCC Tweak Speculation

JGB futures are trading sharply lower than the overnight closing level, -44 compared to settlement levels at 147.31, as speculation regarding a change in yield curve control (YCC) at the late July meeting builds.

• Bloomberg reports that to a former executive director at the bank believes the BoJ will probably adjust its YCC program given that inflation is stronger than expected. (See link)
• Bloomberg earlier reported that the BoJ will raise its inflation forecast above 2%.
• Bloomberg reports the steepening in the 5s10s JGB curve a couple of days ago and argued that it represented traders bracing for a tweak to yield curve control at the next meeting in two weeks. The spread has been very stable between 16 and 20 bps since the second week of April but has started to widen again. It got to 21 bps on Thursday. (See link)
• Cash JGBs bear steepen with yields 0.3bp to 3.1bp higher (30-year). The benchmark 10-year yield is 1.0 higher at 0.485%, below the BoJ's YCC limit of 0.50%.
• The swap curve is also bear steepening with swap spreads wider.
• Today the local calendar sees Industrial Production and Capacity Utilisation data for May along with BoJ Rinban operations covering 1-10-year and 25-Year+ JGBs.