Long-End Cash JGBs Regain Poise, 10-Year Yield Stays Near BoJ's 0.25% Cap

The outperformance of the super-long sector drove flattening in cash JGB yield curve, with 30s leading gains at typing. This represents a reversal of early price action, which saw the 20/30/40-Year sector lag shorter-dated bonds. Long-end purchases coincided with the publication of the results of a liquidity enhancement auction covering off-the-run JGBs with 15.5-39 years until maturity, which saw spreads widen, spread tail tighten a little and the cover ratio slip, relative to the previous auction. A spillover from other core FI markets may have facilitated the re-flattening of JGB curve.

• JGB futures had a strong start to the session, running to 148.05 in the initial upswing. The contract eased off into the Tokyo lunch break, which was out of sync with gains in T-Notes and Aussie bond futures, while coinciding with the latest round of comments from FinMin Suzuki. The contract found poise after lunch, albeit fell short of re-testing session highs, and last deals +15 ticks at 148.00.
• The latest speech from FinMin Suzuki reconstructed a familiar logic surrounding the division of labour between the MoF and BoJ, while reaffirming existing views on FX developments. The minister vowed to respect the central bank's independence as it's trying to achieve sustainable, wage-driven inflation. He noted that the MoF is in daily communication with the U.S. over market developments, despite earlier remarks from Tsy Sec Yellen, who said Japan did not notify the U.S. about any new FX interventions. Suzuki reiterated that officials are focusing on excessive volatility, while the exchange rate should be determined by the market, despite earlier conceding that the pass-through from currency depreciation to domestic price pressures is increasing.
• 10-Year JGBs operated in the vicinity of the 0.25% yield ceiling set by the BoJ as part of its Yield Curve Control programme. A scheduled round of 3-25+ Year Rinban operations tomorrow will be watched for any signs of escalation in YCC enforcement ahead of the BoJ's monetary policy meeting this Friday.