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Light Steepening Holds, Tsy Moves Eyed After Restart

JGBS
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The previously alluded to steepening pressure that we flagged midway through the Tokyo morning has extended a little, with the major cash JGB benchmarks running flat to ~2bp cheaper at the lunch bell, while JGB futures continue to operate around overnight closing levels after recovering the early Tokyo downtick (-13 at the lunch bell).

  • Local headline flow has been light, with reaction to Fed Chair Powell’s hawkish warnings and some payside flow in swaps weighing on the super-long end of the curve. This could extend further in the Tokyo afternoon given the weakness seen in Tsys during the Tokyo break.
  • Note that the presence of BoJ Rinban operations covering 1- to 25-Year paper may have shielded JGBS out to 10s to some degree. The recently released details of the operations revealed shallow to average cover ratios (1.4-2.4x), which could result in some fresh support for the zones covered, although that will be weighed up against the aforementioned extension cheaper in U.S. Tsys.
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The previously alluded to steepening pressure that we flagged midway through the Tokyo morning has extended a little, with the major cash JGB benchmarks running flat to ~2bp cheaper at the lunch bell, while JGB futures continue to operate around overnight closing levels after recovering the early Tokyo downtick (-13 at the lunch bell).

  • Local headline flow has been light, with reaction to Fed Chair Powell’s hawkish warnings and some payside flow in swaps weighing on the super-long end of the curve. This could extend further in the Tokyo afternoon given the weakness seen in Tsys during the Tokyo break.
  • Note that the presence of BoJ Rinban operations covering 1- to 25-Year paper may have shielded JGBS out to 10s to some degree. The recently released details of the operations revealed shallow to average cover ratios (1.4-2.4x), which could result in some fresh support for the zones covered, although that will be weighed up against the aforementioned extension cheaper in U.S. Tsys.