JPY Swaps: Tankan disappoints; Future-led 7y offers; 2s/10s flatter as 10y given

• Tankan disappoints as reading hits lowest since March 2021

• Future-led 7y offers; 1s/20s flatter as 10y given

• New issues

Tankan disappoints as reading hits lowest since March 2021

JPY rates trader were as optimistic as those in other rates market in the morning session after the November US CPI data, which came in below expectation of 7.1% and lower than the previous month. JGB future therefore opened the day 20-tickst higher, with stronger momentum after lunch break.

The rally in the rates market was also backed by weak domestic data. The BOJ’s Tankan survey results showed that factory sentiment worsened in Q4 although services improved. Large Manufacturers Index was 7 in the three months to December, below last quarter’s reading of 8 although slightly better than expectations for a reading of 6. It was also the worst reading since March 2021. The outlook for the sector also worsened to 6 in the fourth quarter from 9. Industrial Production in October was forecast to contract by 3.2% month-on-month, worsening from 2.6% of contraction in the previous month.

Core machine orders in October was stronger than expected but players have largely ignored this data. It grew 5.4% month-on-month in October, after 4.6% worth of contraction in September and compared to economists’ prediction of 1.8% of growth.

The lead bond future finally closed the day 15-ticks higher at 148.20, and the yield on the benchmark 10-year JGB was down marginally at 0.248%.

Future-led 7y offers; 1s/20s flatter as 10y given

The rally in bond futures has triggered some light receiving in 7-year in late-morning domestic trading and it was offered down about 1.5bps at 0.41625%.

10-year traded down 2bps at 0.575% at the open. Receiving intensified after lunch break and 10-year was last changing hands at 0.56%. 2s/10s swaps flattened out for the second consecutive session, and was marked a basis point flatter of 45.5bps at time of writing. 10s/20s swaps flattened out by a basis point intraday before being marked unchanged at just below 40.5bps as 20-year has been slightly underperforming 10-year on the selloff. It traded briefly at half a basis point lower at just below 0.995% in the afternoon session.

New issues

• Tokyo Gas Co Ltd raised JPY19.8bn via selling the following December 18, 2082 bonds:

   

  • JPY9.7bn, 1.149% with semi-annual call at par from December 2032. Priced at JGBs + 90bps.

  • JPY10.1bn, 0.735% with semi-annual call at par from December 2027. Priced at JGBs + 60bps.