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JGBS: Mizuho Highlight Attractiveness Of 5s & 10s Swapped To SOFR

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Mizuho note that cheapening seen in JGBs on ASW and the dip in X-ccy basis means that buying JGBs and swapping them to SOFR has moved towards the most attractive levels seen in ~2 years (looking at 5- & 10-Year JGBs).

  • They note that their “medium-term view is still supportive of X-ccy basis tightening: FX hedging costs for Japanese investors remain too high except in specific areas like BTPs, Yankees continue to sound like a good option to source USD given the attractiveness in terms of issuance, Trump's administration deregulation efforts will continue to ensure ample USD liquidity in the system and we continue to see investor appetite to buy JGB ASWs swapped”.
  • They also suggest that “Shunto negotiations are also looking promising, which can support the richening of JPY funding further. The key risk to our view is ongoing risk-off sentiment, but we have noted that x-ccy markets are now more resilient when facing wobbly risk sentiment”.
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Mizuho note that cheapening seen in JGBs on ASW and the dip in X-ccy basis means that buying JGBs and swapping them to SOFR has moved towards the most attractive levels seen in ~2 years (looking at 5- & 10-Year JGBs).

  • They note that their “medium-term view is still supportive of X-ccy basis tightening: FX hedging costs for Japanese investors remain too high except in specific areas like BTPs, Yankees continue to sound like a good option to source USD given the attractiveness in terms of issuance, Trump's administration deregulation efforts will continue to ensure ample USD liquidity in the system and we continue to see investor appetite to buy JGB ASWs swapped”.
  • They also suggest that “Shunto negotiations are also looking promising, which can support the richening of JPY funding further. The key risk to our view is ongoing risk-off sentiment, but we have noted that x-ccy markets are now more resilient when facing wobbly risk sentiment”.