The Steepening Extends

Curve steepening has extended through the Tokyo day, with 20+-Year JGB yields running 3.0-8.0bp higher, aided by the previously outlined show higher in U.S. Tsy yields and the BoJ’s choice to refrain from deploying another round of off-schedule Rinban purchases.

• Paper out to 10s is little changed, anchored by the BoJ’s YCC mechanism, which promotes a steeper curve in a bearish bond environment.
• JGB futures are a touch lower vs. levels seen at the end of the overnight session, last +4 vs. yesterday’s settlement, hugging a tight range. Participants are seemingly unwilling to test the BoJ’s resolve via a retest of June’s bearish extremes in the contract given the (ultimately successful) BoJ defences deployed at that time.
• 2-Year JGB supply and the weekly international security flow data headline tomorrow’s domestic docket.