Futures Struggle To Make Decisive Move, Curve Steepens

JGB futures are back from session highs observed after the Tokyo lunch break, dipping back into negative territory, -3 ticks as we move towards the close.

• Cash JGBs are little changed to 2bp cheaper across the curve, with super-long JGBs leading the weakness.
• The limited cheapening in paper out to 10s comes as 10-Year JGB yields continue to probe the BoJ’s yield cap, with participants seemingly mindful of the possibility of an unscheduled round of BoJ bond purchases.
• Japanese national CPI data printed 0.1 ppt above expectations on all three Y/Y metrics, incrementally raising the chances of the BoJ stepping in to defend its YCC settings via unscheduled methods (which hasn’t happened yet). The central bank is still expected to leave its major monetary policy settings unchanged at the end of its upcoming meeting (which concludes on Thursday).
• Japanese Finance Minister Suzuki noted that initial fiscal measures to combat inflation will be drawn from reserve funds, while subsequent action will require additional funding via a supplementary budget.
• Wednesday will see a liquidity enhancement auction for off-the-run 1-5 Year JGBs, while the domestic economic data docket is light at best.