JPY Swaps: 5y spread wider despite BOJ's 5y loans-for-bonds operation

Up arrow chart 8 apr 2022
BOJ's 5y loan opearation has supported further sharp rally in JGB future, but 5y swap spread widened out after the operation.

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  • 5y swap spread wider after BOJ’s lending program


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5y swap spread wider after BOJ’s lending program

JGB future fell briefly in the morning session following similar move in the US treasury market. The upward momentum then resumed in mid-morning domestic trading with strong rally since mid-afternoon domestic trading. The lead bond future was up by 74-ticks intraday, after dipping by 13-ticks in the morning session. The yield on the benchmark 10-year JGB was little changed at 0.376%.


The extended rally in the JPY rates market has been backed by the BOJ’s lending program. The central bank announced earlier today that it would provide JPY1trn worth of 5-year collateralised loans for commercial banks in a move to help limit a rise in JGB yields. This is also the longest term the BOJ has ever offered via this operation. The loan program finally drew JPY3.1trn worth of interest, and the average interest rate was 0.145%, compared to 5-year JGB yield at around 0.165% at time of writing.


The BOJ’s loans-for-bonds plan has already helped tighten 5-year swap spread from levels near 36bps at the beginning of the year to as tight as below 17.5bps late last week. The spread widened out after the operation, and was marked almost 2bps wider at 21bps at time of writing.


Trading in swaps has not been busy with a couple of Asian markets closed today due to Chinese New Year. A dealer reported very light receiving in 5-year which traded about 1.25-1.5bps lower at down to 0.37%, steepening 5s/10s swaps marginally.