Unscheduled BoJ Action Fails To Halt Cheapening

The major benchmark JGBs hold the bulk of their early moves, running flat to ~2.5bp cheaper, with 7s and 20s providing the weakest points on the curve (tied to a move lower in futures & potential structural demand issues, respectively), while 2s and 10s are little changed, with the latter of course limited by the presence of the BoJ’s YCC scheme.

• Futures hit the break -28, just off worst levels of the session, and 27 ticks off September’s low, where initial technical support lies. A there would expose levels not seen since June, when the BoJ’s will re: its YCC scheme was being tested.
• The show higher in yields triggered an unscheduled round of 5- to 25+-Year BoJ Rinban operations (as we suggested may be the case). However, this did little to placate the market, with 10-Year JGB yields immediately showing above the upper limit of the range permitted under the BoJ's YCC (per BBG), while JGB futures nudged lower, recording fresh session lows in the process.
• The recently released details of the BoJ’s unscheduled purchase operations saw mixed offer/cover ratios, which printed at ~4.0x in both the 5- to 10- & 25+-Year buckers, while the 10- to 25-Year bucket saw a cover ratio of ~2.2x, pointing to investors being comfortable with selling paper away from 10s, given the BoJ’s continued defence of, and insistence that it will stand by, its current YCC settings.