Long End Leads The Bid As Curve Flattens

A flow-centric move in JGB futures was seen in early Tokyo afternoon trade, with a pull higher accelerating on a break of the morning high in the contract. We haven’t got much in the way of an outright fundamental explainer for the move, outside of average to low offer/cover ratios at today’s BoJ Rinban operations (covering 3- to 25-Year JGBs).

• JGB futures now sit +17 as we head into the last hour of trade, pulling back from best levels, continuing to operate comfortably within the recently observed range.
• Wider cash JGBs see 2-10bp of richening as the curve flattens, with the firm pricing at yesterday’s 40-Year JGB auction and Dai-Ichi Life’s intentions to repatriate funds into super-long JGBs (noted on Tuesday) likely legacy drivers in the super-long end. The wider curve has reversed the steepening impetus that was observed into yesterday’s 40-Year supply.
• Swap rates are 0.5-3bp lower across the curve, with swap spreads running wider as a result.
• Outgoing BoJ Governor Kuroda failed to move the needle when it came to his latest round of parliamentary comments.
• Meanwhile, newly installed BoJ Deputy Governor Uchida pointed to some degree of willingness to keep the market guessing when it came to future policy moves (similar to Governor-in-waiting Ueda), while stressing the importance of BoJ communication channels.
• Elsewhere, new Deputy Governor Himino pointed to the need to maintain ultra-loose policy settings to support the economy.
• 2-Year JGB supply and the weekly international security flow data headline Thursday’s light local docket.