JPY Swaps: Fourth BOJ buyback attempt; Shorts bid flattens curve; SL given

Rolled flat 21 Jun 2021
Today marked the fourth BOJ buyback attempt which was ineffective on curbing yield rise. 2y swaps were well bid and the curve flattened out.

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  • BOJ in fourth consecutive bond buying attempt

  • SL better offered amid equity selloff

  • 2s/10s flatter as 2y well bid


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BOJ in fourth consecutive bond buying attempt

The Japanese financial market re-opened today as its first trading day in 2023. There has been a bit of catch up in the rates market following similar move in other key markets. On top of that, the BOJ also announced an unscheduled bond buying operation earlier today, or the fourth consecutive attempt, backing demand for bond future.


In addition to the daily unlimited buyback of 10-year JGBs at 0.5%, the BOJ offered today to buy unlimited amount of 2- and 5-year JGBs at 0.03% and 0.23% respectively. It also offered to buy back JPY600bn worth of 1- to 25-year JGBs.  


Therefore, JGB future saw some good rally with stronger upward trend in the afternoon session. In mid-afternoon Tokyo trading the lead bond future was up 30-ticks at 145.52. The yield on the benchmark 10-year JGB was however up 3.5bps at 0.447%, as the BOJ’s reaction has triggered even more intense fears over further upside in 10-year JGB yield, according to a player.



SL better offered amid equity selloff

In swaps, there has been better paying except at the superlong-end where swaps have been better offered amid sharp losses in the Nikkei, which has been in turn driven by the strength in the yen.


USD/JPY dropped from levels above 133.8 before Near Year to levels below 131 as of today, prompting a selloff in Japanese equities.


Swaps from the 10-year point were offered down 1-1.5bps on the day. 20-year swaps, which closed at its fresh high of above 1.24% on Friday, was marked a basis point lower at 1.2325% in the afternoon.



2s/10s flatter as 2y well bid

Swaps to 10-year were paid up and many tenors traded to their new high today.


10-year, for example, traded near 0.92% around mid-day before last seen changing hands at 0.8825%. These compared to previous close of below 0.875%.


10s/20s swaps therefore flattened out by 2bps flatter to 34.75bps.


Slightly down the curve, 7-year was marked 1.5bps higher at its fresh high of 0.7325% at time of writing, after traded up to 0.75% earlier in the day.


The unlimited buyback of 2-year JGBs has failed to curb further upside in short-end rates. Indeed, 2-year swaps have been well bid with many good-sized flow. It traded up to about 4bps higher near market close, flattening 2s/10s swaps by 0.75bps to 62.25bps.