Holiday Catch Up & Swap Flow Helps JGBs To Cheapen

The longer end of the curve has led the post-holiday weakness observed in the cash JGB space, while 7s have weakened more than 5s and 10s owing to the weakness in futures. Cash JGBs sit 1-3bp cheaper on the day as a result. Offshore FI weakness observed during the 3-day Tokyo holiday and during the first half of today’s Asia-Pac session is a key factor in the weakness, while payside flow in swaps is also helping the move (5+-Year swap spreads are generally wider). JGB futures are -23 at the lunch bell, hovering just above worst levels of the day.

• Local headline flow remains limited at best.
• The BoJ continues to offer fixed rate operations on a daily basis as it looks to hammer home its commitment to enforcing the upper end of its permitted 10-Year JGB yield trading band. Note that 10-Year JGB yields sit at ~0.24%, 1bp shy of the BoJ’s YCC upper limit.
• A liquidity enhancement auction for off the run 1- to 5-Year JGBs headlines domestically this afternoon, although the tone will likely be set by wider core FI movement.