Off Lows But Comfortably Cheaper after Firm Tokyo CPI Data

The JGB space operates off of worst levels into the bell, but is still comfortably cheaper on the day.

• Cash JGBs run little changed to ~4bp cheaper across the curve, with the early steepening giving way to 7s leading the weakness as futures remain heavy and the long end recovers from session lows, with life insurers and pension funds perhaps deploying capital after the passage of 40-Year JGB supply. Futures print ~40 ticks lower on the day ahead of the bell, operating a little off worst levels.
• Firmer than expected Tokyo CPI data provided the initial catalyst for the move lower, while the soft cover ratio observed at the latest round of 40-Year JGB supply promoted an extension of the early steepening momentum during the early rounds of afternoon dealing.
• There was also the potential for some delayed reaction to comments from Japanese Finance Minister Suzuki re: a desire to move away from short-term financing to factor into the steepening.
• Weekly Japanese international security flow data from the MoF revealed that foreign investors deployed the second largest ever round of net weekly purchases of Japanese bonds last week. This was probably a mix of short covering and perhaps some deployment of capital owing to advantageous FX-hedged yield pickups on offer.
• Note that the weekend will see BoJ Deputy Governor Amamiya appear at a meeting on monetary economics, while Monday’s domestic docket will be headlined by the latest round of BoJ Rinban operations.