Super-Long End Drives The Bid As Curve Flattens

The morning bid in JGBs extends through the afternoon.

• Early gains were inspired by comfortably larger than average estimates of month-end index extensions and spill over from the light bid seen in U.S. Tsys on Monday.
• That leaves JGB futures +20 ahead of the close, just shy of best levels.
• Wider cash JGBs run 1-9bp richer as the curve bull flattens, with desks still pointing to super-long demand from life insurers and pension funds ahead of the turn of the Japanese FY.
• Swap spreads were mixed across the curve, with the most pronounced moves coming in the form of widening in the super-long end.
• Comments from BoJ Deputy Governors in waiting, Himino & Uchida, failed to move the needle as they took part in their nomination hearings in front of the upper house of parliament. Ultimately, they didn’t stray too far from what they delivered to the lower house last week. The comments are moderate to slightly dovish when compared to the pre-hearing expectations that were in place last week (pushing back against an imminent need for policy tweaks, while being cognisant of side effects of policy settings). Ultimately, the new stewards of the BoJ should be a little more pragmatic, tipping its hat to the need to alter policy again at some point (when the inflation goal is reached), while supporting the deployment of current policy settings.
• 2-Year JGB supply was delayed by technical issues but cleared smoothly.
• The latest round of BoJ pooled collateral funding operations generated a cover of just over 3.00x.
• The BoJ will release its March Rinban schedule after market.
• Final manufacturing PMI data and an address from BoJ’s Nakagawa will cross on Wednesday.