Tsys Flatten A Touch In Asia, JGBs Soften On BoJ Inaction

Asia-Pac hours saw participants buy into Thursday’s dip, in the main, with a lack of overt headline flow apparent. Widespread COVID testing in the Chinese city of Shanghai and continued speculation surrounding the Russia-China situation were seen as supportive factors (in what seemed to be an exercise of finding an explainer for a modest bid after equity indpired cheapening into the NY bell), although ranges were tight. TYM2 sits -0-04+ at 122-05, dealing in the middle of the contract’s 0-07+ overnight range. Volume in the contract is sub-standard, at least in recent terms, running shy of 100K. 2s have cheapened by ~0.5bp, bucking the broader trend, as 30s run ~2.0bp richer on the session, with twist flattening evident. Looking ahead, pending home sales and final UoM sentiment provide the economic readings of note during NY dealing, with Fedspeak from Waller, Williams & Barkin (’24 voter) due.

• BoJ inaction, when it came to the move above 0.23% in 10-Year JGB yields, facilitated further JGB cheapening during the Tokyo morning, although afternoon trade was a little more tepid. The major cash JGB benchmarks were running little changed to ~4bp cheaper late in the day, as 40s provided the weakest point on the curve, resulting in bear steepening. Note that 10-Year JGB yields now sit at 0.24%, 1bp above the trigger point for BoJ fixed rate operations in Feb and 1bp below the top of its -/+0.25% permitted 10-Year JGB yield trading range. JGB futures were 16 ticks lower on the day, but off of worst levels, after registering fresh cycle lows. Technical support in the contract is seen at the 0.5% 10-DMA envelope (149.37), which is now within touching distance. BoJ Governor Kuroda flagged the importance of YCC when it comes to the Bank’s monetary policy operations in his latest Diet appearance, which would suggest that there are no immediate plans to alter the Bank’s permitted 10-Year JGB yield trading range (although he didn’t make direct reference to the current band settings, outside of “trading around 0%”). This seemingly makes it a case of when, not if, the BoJ will act on 10-Year JGB yields, if needs be. He also pointed to no desire to alter monetary policy settings based on cost-push inflation dynamics (a known). Elsewhere, Japanese Finance Minister Suzuki flagged an unveiling of a fiscal support package for some time next week (in line with press speculation).
• Aussie bond futures went out around the middle of their Sydney ranges, YM -1.0 & XM -2.0, with the space back from best levels after drawing support from the previously outlined firm round of ACGB Nov-24 supply and some modest regional demand for U.S. Tsys during early Asia-Pac dealing, allowing a correction from early Sydney troughs. The space looked through next week’s atypical AOFM issuance slate.