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Futures Weaker, May Core CPI Beat Has Little Impact, 1-25-Year Rinban Due

JGBS

JGB futures are holding at overnight closing levels, -11 compared to settlement levels, after reversing the initial cheapening reaction to higher-than-expected core and core-core CPI.

  • National May CPI data came in a touch stronger than forecast. The headline was in line at 3.2% y/y, but ex-fresh food rose 3.2% y/y against a 3.1% forecast. The core-core measure (which also excludes energy), rose to 4.3%y/y, a fresh high back to 1981. The market estimate for this print was 4.2%.
  • Overall, these prints clearly add to risks around an upside revision to the BoJ's inflation outlook in July. However, BoJ board rhetoric this week has pushed back against the need for any YCC tweaks at the July meeting.
  • The cash JGB curve twist steepens beyond the 1-year zone with 2-4-year zone yields 0.7-0.9bp lower and the 30-year zone yield 0.7bp higher. The benchmark 10-year yield is 0.3bp higher at 0.382%, below the BoJ's YCC limit of 0.50%.
  • Swap rates are higher across the curve with swap spreads wider except for the 7-year and the 20-30-year zones.
  • Today will see BoJ Rinban operations covering 1- to 25-Year JGBs.
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