Month-End & Monday Spill Over Impulse Lingers, Curve Bull Flattens

JGBs extended on the early gains that were inspired by comfortably larger than average estimates of month-end index extensions and spill over from the light bid seen in Tsys on Monday.

• That left JGB futures +17 at the lunch break, with bulls seemingly reticent when it comes to forcing a meaningful break through the overnight session high (with a couple of limited forays above witnessed thus far). Wider cash JGBs run 1-5bp richer as the curve bull flattens, with desks pointing to super-long demand from life insurers and pension funds ahead of the turn of the Japanese FY. Swaps spreads were flat to wider across the curve, with the widening most pronounced in the super-long end.
• As noted in our previous bullet, comments from BoJ Deputy Governors in waiting, Himino & Uchida, failed to move the needle as they took part in their nomination hearings in front of the upper house of parliament. Ultimately, these comments haven’t strayed too far from those delivered to the lower house of parliament by the pair at the back end of last week. The comments are moderate to slightly dovish when compared to the pre-hearing expectations that were in place last week. Ultimately, the new stewardship of the BoJ should be a little more pragmatic and has tipped its hat to the need to alter policy again at some point (when the inflation goal is reached), while supporting the deployment of current policy settings.
• The hearing is ongoing, with 2-Year JGB supply providing the highlight of this afternoon’s domestic docket.