Futures Sitting Weaker, Off Session Lows, As BoJ Buys Y300bn 5-10Y At Market

At the Tokyo lunch break, JGB futures are weaker, just off session lows, -53 compared to the settlement levels.

• There hasn’t been much in the way of domestic drivers to flag, outside of the previously outlined retail sales beat and industrial production miss.
• According to Bloomberg (Cranfield), JGB traders are entering a new phase in which BoJ bond-buying programs are more likely to be an avenue for increasing, rather than reducing risk. Bond investors now have a moving target where they can expect the BoJ to step in when there has been too much short-term bond volatility and purchase JGBs to smooth the market. At least until the 1% threshold is reached.
• The cash JGB curve has bear steepened with yields 0.6bp (1-year) to 7.2bp (20-year) higher at the Tokyo lunch break as the market continues to adjust to Friday’s surprise decision to tweak YCC. The benchmark 10-year yield is 3.0bp higher at 0.598%. The Bank will offer to purchase 10y JGBs at 1.0%, instead of 0.50%, every business day through JGB purchase programs and fixed-rate operations, in accordance with the level and speed of change. Today the BoJ announced bond-purchase operations of ¥300b of 5-to-10-year notes at market.
• The swap curve also bear steepens with swap spreads generally wider apart from the 7-year and 20-year zones.