JPY Swaps: Bid after Tokyo inflation spike; Curve steeper

Steep grades 15 Jun 2020
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The spike in Tokyo inflation has backed paying in JPY swaps, but the lack of flow saw some wilder price move. The curve steepened up.

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  • Bond future slumps as Tokyo inflation spikes

  • Light 2-10y bid; 2s/7s and 2s/10s steeper

  • New issues

 

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Bond future slumps as Tokyo inflation spikes

JGB future slumped today, following a surprise in domestic data and sluggish demand at the auction.

 

Official data released earlier today showed that inflation in Tokyo was up 3.8% year-on-year in November, up from 3.5% in the previous month and above economists’ expectations of 3.6%

 

The MOF sold JPY2.4996trn worth of its JPY2.5trn 5-year 0.005% JGBs (Number 15R) at tender today. The auction drew bids worth 2.35 times, down slightly from 2.70 times last month. Average yield was 1.58%. The tail tightened from 2.70 last month to 2.35.

 

JGB future fell soon after market open, and the momentum intensified in the afternoon after the JGB auction. In mid-afternoon Tokyo trading the lead bond future was down 46-ticks at 148.92, and the yield on the benchmark 10-year JGB was up half a basis point to 0.248%.

 

 

Light 2-10y bid; 2s/7s and 2s/10s steeper

Trading in swaps has been subdued today. A dealer reported sporadic paying in swaps since market open. The source reckoned players would stay in a cautious mode until the release of domestic unemployment and retails sales data near the middle of next week.

 

According to the source, 10-year swaps traded mostly in a tight range around 4.75bps higher of 0.555% in the morning, but was further paid up to 0.57% after lunch break.

 

2s/10s swaps steepened up by 1.75bps to 44.25bps, despite a couple of paying in 2-year at a basis point higher of 0.1175% up until mid-day.

 

2s/7s swaps, on the other hand, steepened up by 1.75bps to 27.5bps amid paying in 7-year. Another player noticed 7-year bid at up to 3.5bps higher of 0.4% in the afternoon session but blamed the big move in price to lack of trade flow on the day.

 

 

New issues

  • Honda Finance raised JPY30bn via selling bonds in two equal tranches as follows:

     

    • 0.495%, December 20, 2027 at JGBs + 39bps.

    • 0.3%, December 19, 2025.