Richening Extends, Although Capped

Cross-market spill over surrounding Australian data, as well as potential short trimming in lieu of reduced expectations for meaningful BoJ policy shifts in the immediate term (outside of YCC tweaks), supported the JGB space in the Tokyo morning, although firmer than expected Chinese PMI data helped to cap the bid ahead of the lunch break.

• Futures were +25 at the lunch bell, shy of best levels, extending on their overnight gain and building on the recovery from Feb lows. Technically, the contract is in a holding pattern.
• Cash JGBs sit little changed to ~3bp richer, with 7s leading, aided by the bid in futures. 10-Year JGB yields continue to hover incrementally below the BoJ’s YCC cap.
• Swap rates have lagged the move lower in JGB yields across the curve, excluding 10s, leading to wider swap spreads in the main.
• BoJ’s Nakagawa stuck to the BoJ’s central line re: the need for continued monetary easing at present, while outlining question marks re: the scale of broad wage hikes that will be implemented in the immediate term and pointing to a fairly concentrated inflationary spike, which he expects to moderate soon.