Off Best Levels Into The Bell

JGB futures showed through their morning high, but failed to extend meaningfully beyond that point, heading into the bell +21, 20 ticks off their session peak. While cash JGBs run flat to 8.5bp richer, as 40s lead the bid. 10s continue to operate above the BoJ’s permitted YCC cap, lagging the bid on the wider curve. Swap spreads are generally tighter, with benchmarks on the swap curve running ~5-6bp lower, in a parallel shift.

• The presence of the BoJ’s pre-announced but unscheduled Rinban purchases helped support the space in the morning, with some pre-BoJ meeting short trimming probably helping the general direction of travel well..
• We also suggest there was some support from a Nikkei report suggesting that “many in the central bank believe that it should take a wait-and-see approach on policy changes” ahead of this week’s BoJ monetary policy meeting.
• Offer/cover ratios observed in the details of the BoJ Rinban operations were contained, printing at 1.8-2.7x, providing further support.
• Domestic PPI data was comfortably firmer than expected, but didn’t generate anything in the way of market reaction, giving the prevailing forces flagged above.
• Pre-BoJ gyrations will continue to dominate on Tuesday, with a liquidity enhancement auction covering off-the-run 5- to 15.5-Year JGBs providing the most notable point on the local docket.