JPY Swaps: Light 7-10y bid ahead of domestic retail sales; FX backs 2y flow

• JGB future weaker after US inflation data

• Light 7-10y bid ahead of domestic retail sales; FX backs 2y flow

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JGB future weaker after US inflation data

The selloff in US treasuries on Friday has backed a similar move in the JPY rates market.

On Friday, the short-end of the US treasury curve was sold off badly with 3-year yield up by as much as 15bps, as the latest data released from the US on Friday indicated that the PCE inflation gauge unexpectedly accelerated. This triggered renewed or heightened worries over more US Fed hikes to come.

JGB future, which rebounded by 30-ticks on Friday, fell by as much as 15-ticks in the morning, but trimmed losses at mid-day as incoming BOJ Chief Ueda gave credits to Japan’s expansionary policies. The lead bond future then fell by almost 20-ticks after lunch break before being marked 13-ticks lower at 146.47 in mid-afternoon Tokyo trading. The yield on the benchmark 10-year JGB was marginally lower at 0.499%.

Light 7-10y bid ahead of domestic retail sales; FX backs 2y flow

Trading in swaps has been less active ahead of the domestic retail sales data. Nevertheless, the selloff in JGB future saw light paying in 7-year, which traded around 0.75bp higher at 0.63% on the day. 10-year, on the other hand, traded briefly at about a basis point higher of 0.845% in mid-afternoon domestic trading before currently marked only half a basis point higher.

2s/10s swaps were however a tad flatter at just below 65.5bps, as the rally in USD after the rise in short-dated USD rates has triggered paying in 2-year JPY swaps, which traded about 0.75bp higher of 0.1875% after mid-day.

USD/JPY spiked to above 136.5 in domestic trading, compared to those traded down to around 134 on Friday in Tokyo.