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(Z1) Near-Term Strength Persists

JGBS: VIEW: J.P.Morgan expect "upsized auctions to weigh on the super-long
sector from July. While there are potential candidates for dip-buyers (lifers,
regional bans, Japan Post Bank, etc.), they are already buying somewhat more
than usual. With limited scope for QE boost, clearing level of yields may need
to adjust higher if demand proves to be insufficient to clear supply. Against
this backdrop, we enter a 10s30s JGB steepener trade at this juncture. The key
risk to this trade is risk sentiment, which may derail the steepening trend.
Another risk is unexpectedly swift support coming from the BoJ (most likely from
concerns around 10Y JGB), but we see limited chance of this. We may consider
stop loss if 30-Year JGB yields break below 0.50%, and will also review this
trade when 30-Year JGB yields reache 0.60%, a psychologically important level
for dip-buyers."
MNI London Bureau | +44 0203-865-3809 |
MNI London Bureau | +44 0203-865-3809 |