Notable Steepening Of The Curve Despite Solid 10-Year Auction

The JGB curve has extended its early steepening move during the Tokyo afternoon, with the major cash JGB benchmarks running 0.5bp richer to 7.5bp cheaper ahead of the bell. The pivot has occurred around the 10-Year zone, which continued to be capped by the upper boundary of the trading range permitted by the BoJ’s YCC mechanism.

• 20+-Year paper has more than unwound yesterday’s richening.
• JGB futures are +6 ahead of the bell, a little shy of best levels after drawing support from the latest 10-Year JGB auction, which went well. We would suggest that short covering and outright plays based on the BoJ’s YCC mechanism being successfully defended were the key drivers of demand at today’s auction.
• Domestic headline flow saw familiar rhetoric re: the aim and stance of BoJ monetary policy, as BoJ Governor Kuroda made his latest appearance in front of parliament.
• Elsewhere, familiar language was deployed by Finance Minister Suzuki when it comes to FX intervention matters.
• Looking ahead, Wednesday’s local docket will be headlined the latest round of BoJ Rinban operations.