Futures Weaker But Off Session Cheaps, Rinban Operations May Provide Slight Support

At the Tokyo lunch break, JGB futures are trading sharply lower, -27 compared to settlement levels at 147.33, but well off Tokyo session lows (147.13). That low was set in early trade as local participants reacted to speculation regarding a change in yield curve control (YCC) at the late July meeting.

• 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 ICYMI). Bloomberg had also reported that the BoJ will raise its inflation forecast above 2%.
• Cash JGBs bear steepen beyond the 1-year zone with yields 0.7bp to 2.9bp higher (40-year). The benchmark 10-year yield is 0.4bp higher at 0.479%, below the BoJ's YCC limit of 0.50%. The intraday high so far has been 0.485%.
• This morning’s BoJ Rinban operations saw lower albeit generally small positive spreads and slightly lower cover ratios except for 5-10-year (1-3-year: 1.93x, 3-5-year: 1.65x, 5-10-year: 1.9x and 25-year+: 1.7x), which may generate some slight support in early rounds of the Tokyo afternoon session.
• The swap curve has also bear steepened with swap spreads wider out to the 20-year.
• Later today the local calendar sees Industrial Production and Capacity Utilisation data for May.