Mix Of Inputs Promotes Steepening Of Curve

The impetus derived from core global FI markets since Monday’s Tokyo close, firstly on hawkish ECB & Fed commentary, then on increased optimism surrounding the COVID situation in China (discussed elsewhere) biased JGBs lower on Tuesday.

• This allowed futures to extend through their overnight base, printing -26 ahead of the close, a little above worst levels of the day. Meanwhile, the major cash JGB benchmarks run 1bp richer to 4.5bp cheaper as the curve twist steepens
• 2s outperform on the back of a solid round of 2-Year JGB supply (the only benchmark running firmer on the day), while 10s are capped by their proximity to the upper boundary of the BoJ’s permitted YCC.
• Elsewhere, comments from Japanese Finance Minister Suzuki, pointing to defence spending that equates to 2% of Japanese GDP, may have provided additional bearish impetus, although this was in the range of spending outcomes that had been outlined by media source reports.
• Local data had no tangible impact on the space.
• Looking ahead, the release of the BoJ’s monthly Rinban outline will generate some attention after hours. This comes in the wake of tweaks to this month’s schedule as the BoJ looked to contain the latest meaningful challenge of its YCC settings, although there isn’t much speculation re: tweaks this time around.
• Flash industrial production data headlines the domestic docket on Wednesday.