Twist Steepening Holds, BoJ The Only Game In Town

JGBs held onto the bulk of the moves flagged in our earlier bullets, as what seemed to be pre-BoJ positioning unwinds dominated price action. That left JGB futures +19 at the break, just under 10 ticks shy of their morning high, while cash JGBs were 2bp richer to 3bp cheaper across the curve (10s have crossed back above the upper limit of the BoJ’s YCC parameters for a fourth consecutive day in recent dealing). 20+-Year paper was on the backfoot all morning, potentially facilitated by the unwind of some popular flattener positions into the BoJ decision (note that the 10-/30-Year yield spread hit the flattest level observed since September on Tuesday).

• In terms of a loose playbook for a BoJ YCC band widening, such an instance would seemingly favour outright shorts in futures/5+-Year paper, along with flattener positions using 10s as the short leg vs. longer duration longs, and potentially 5-/10- & 7-/10-Year steepeners.