JPY Swaps: Rates divergence to flatten 2s/10s; 10y bid ahead of BOJ

Rolled flat 21 Jun 2021
JPY swappers expect the BOJ to be on hold next week, and the rates divergence would flatten 2s/10s.

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  • 10y bid ahead of BOJ; Rates divergence to flatten 2s/10s

  • New issues


10y bid ahead of BOJ; Rates divergence to flatten 2s/10s

JGB future was weaker in the morning, tracking the move in US treasuries in Asia trading on Friday. It trimmed losses in mid-morning domestic trading before rallying by 8-ticks intraday in the afternoon session. The lead bond future finally closed the day 2-ticks lower at 147.98, and the yield on the benchmark 10-year JGB was a tad lower at 0.248%.


Trading in swaps has been subdued as players were on the sidelines ahead of the weekend before the next BOJ policy meeting. Consensus is for the central bank to be on hold again despite interest rate hike despite recent interest rate hikes in the US and the UK.


Confirmation about further divergence in rates between Japan and the US will put more pressure on the yen, and a dealer forecast further weakness in the JPY to drive some price action at the front-end of the rates curve, while the still-negative outlook on Japan’s economy will keep 10-year rates at current level, if not lower. He therefore predicted 2s/10s swaps to flatten out from current levels with 45bps as the key and near-term resistance. The spread was a basis point wider at 48bps today amid paying in 10-year due to earlier losses in the JPY rates market. 10-year went through up to 3bps higher of 0.645% soon after market open before being traded mostly between 0.63% and 0.635% the rest of the day.



New issues

  • Nomura Research raised JPY70bn via selling the following bonds:


    • JPY10bn, 0.774%, December 22, 2032 at JGBs + 52bps.

    • JPY25bn, 0.679%, December 21, 2029 at JGBs + 45bps.

    • JPY30bn, 0.489%, December 22, 2027 at JGBs + 34bps.