Mostly Firmer, BoJ Side Effects Continue To Ripple Through

JGB futures sit +9 ahead of the bell, after backing away from their post-auction Tokyo peak. The contract hasn’t threatened the boundaries of its recent range.

• There was smooth takedown of the latest round of 40-Year JGB supply, which saw the high yield print below wider expectations, while the cover ratio nudged higher ticking above the 6-auction average. This allowed the super-long end to outperform, with benchmark JGB yields operating 1.5bp cheaper to 3.0bp richer, as 10s provide the only cheaper point on the curve.
• Liquidity issues caused by the BoJ’s notable holdings and continued/upsized purchases are starting to have an even more far-reaching impact on JGBs, with JGBs maturing in Mar ’24 & Mar ’32 being removed from the FTSE Russell WGBI, with the Jun ’32 & Sep ’32 JGBs set to follow suit soon.
• There was a Nikkei article which outlined the well-trodden view of the Japanese life insurer and pension fund community after last year’s cash repatriation and given elevated FX hedging costs.
• Elsewhere, we had services PPI data (a modest downside outcome) and the previously covered summary of opinions from the most recent monetary policy decision (no surprises) crossed.
• Looking ahead, Tokyo CPI data headlines tomorrow’s local docket.