JPY Swaps: More 10y offers despite inflation at 41y high; 5y payers

Baloon inflation 9 Jul 2020
10y JPY swaps saw further receiving despite latest data showing core inflation hitting its 41y high.

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  • JGB future rallies further despite inflation at 41y high

  • 10y given after earlier bid; 5y payers

  • New issues


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JGB future rallies further despite inflation at 41y high

The JPY rates market extended its latest rally fever as it headed to the fifth consecutive days of sharp gains which started on Monday. JGB future opened a tad lower and was down by 11-ticks in early morning domestic trading following strong domestic data, but the uptrend re-established soon after. 


Official data released earlier today showed that core inflation in December was up 4% year-on-year, in line with expectation although higher than 3.8% in November. Apart from doubling BOJ’s target, it was also the highest in 41 year. Inflation excluding food and energy was 3%, compared to economists’ forecast of 3.1%.


The lead bond future was up by 73-ticks intraday before being marked 69-ticks higher at 147.19 in mid-afternoon Tokyo trading. The yield on the benchmark 10-year JGB was up by around 2bps before dipping by more than 2bps to 0.399% at time of writing.



10y given after earlier bid; 5y payers

Dealers said the market is still adjusting itself, as the selloff in JPY rates following the surprising widening of the 10-year JGB band now looks too excessive. JGB future has still not recovered to levels prior to the slump in December after the BOJ’s shocking announcement, and there will be further upside in JPY rates given that core inflation was still within expectations, according to a swap source.


In swaps, 10-year has been offered after some light and short-lived paying at 1.5-2bps higher in early morning domestic trading. It was soon replaced by receiving interest. It traded down to 3.25bps lower of 0.7275% before lunch break, although the majority of the flow has been between 0.735% and 0.75%.


5-year, on the other hand, saw mostly paying interest with light receiving seen around 1.75bps lower of 0.375% near lunch break. Other than that, there has been paying between 0.41% and 0.42%.


2s/10s swaps flattened out further, and was marked about a basis point lower of 57bps at time of writing.



New issues

  • Mitsubishi UFJ Financial Group raised via MUMSS JPY200bn worth of July 28, 2033 bonds as follows:


    • JPY176bn, 1.209% until the single call at par in July 2023, then 95bps over JGBs.

    • JPY24bn, 1.564%.


  • Nissan Motor Co issued JPY60bn worth of bonds as follows:


    • JPY10bn, 1.454%, January 20, 2028 at JGBs + 125bps.

    • JPY50bn, 1.015%, January 20, 2026 at JGBs + 100bps.


  • Sumitomo Mitsui Financial Group Inc issued JPY130bn worth of bonds via Nikko as follows:


    • JPY24.7bn, 1.466% until the single call at par in January 2033, then 1.07% over JGBs. Priced at JGBs +107bps.

    • JPY35.8bn, 1.054% until the single call at par in January 2028, then 0.85% over JGBs. Priced at 85bps over JGBs.

    • JPY69.5bn, 0.855% till the single call at par in January 2026, then 0.84% over JGBs. priced at JGBs + 84bps.