Twist Steepening

JGBs mostly richened during the Tokyo morning, as a pull lower in crude oil prices and general downtick in equities provided support, with the front end of the curve outperforming. The exception to that rule came in 7s, which cheapened on catch up to the overnight weakness in futures.

• The curve then developed more of a twist steepening pattern in the afternoon, although the move was generally modest, with the major cash JGB benchmarks running 1bp richer to 0.5bp cheaper, pivoting around the 5- to 7-Year zone.
• The breakdown of the latest round of BoJ Rinban operations seemed to be the driving factor behind the modest steepening, with the following offer/cover ratios observed:
• 1- to 3- Year: 2.73x (prev. 2.00x)
• 5- to 10- Year: 1.80x (prev. 3.22x)
• 25+- Year: 4.91x (prev. 1.89x)
• Note that the jump in cover ratio observed in 25+-Year JGBs was a function of the BoJ operations reverting to “normal” size after last week’s impromptu purchases (the market offered to sell Y248.1bn of 25+-Year paper to the Bank to vs. the Y283.4bn seen in last week’s off-schedule operation).
• Futures oscillated around late overnight session levels and head into the Tokyo close 16 ticks softer on the day.