Twist Steepening On Conflicting Forces

Cash JGBs twist steepened as Tokyo returned from the elongated weekend, with a moderation in expectations surrounding the prospect of a 100bp rate hike from the U.S. Federal Reserve later this month supporting paper out to 10s, while super-long JGBs struggled after Monday’s cheapening in the wider core global FI space. That leaves the major JGB benchmarks running 1.5bp richer to 5.0bp cheaper, with the wings of the curve representing the respective extremes.

• Paper out to 5s also drew support from a downtick in the offer/cover ratio in BoJ Rinban operations across 1- to 5-Year JGBs, with less movement observed in the metric covering 5- to 10-Year Rinban operations (although the BoJ’s presence likely provided some incremental support there as well).
• The Tokyo open saw JGB futures unwind Friday’s post-Tokyo bid on the back of the aforementioned Monday cheapening in wider core global FI markets, with that contract last dealing little changed ahead of the Tokyo bell, operating within the confines of a relatively narrow range.
• A liquidity enhancement auction for off-the-run 1- to 5-Year JGBs headlines the domestic docket on Wednesday.