JPY Swaps: Swaps bid and curve steeper; BNP Paribas sees 20y JGB opportunities

Steep curve 9 Nov 2020
The JPY rates market was weaker after some earlier gains. Swaps have been bid and the curve steepened up. BNP Paribas sees opportunities in 20y JGBs.

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  • Shorts 20y JGBs and closes 10y IRS – BNP Paribas

  • Swaps bid; Curve steeper

  • New issues


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Shorts 20y JGBs and closes 10y IRS – BNP Paribas

The JPY rates market was a few ticks higher at the open, tracking though underperforming the USD rates market which rallied hard on Friday and took 10-year US treasury yield back down to below 4%. The upward momentum has failed to sustain and the lead bond future then fell by more than 10-ticks in the afternoon session before being marked 7-ticks lower at 146.82 in mid-afternoon Tokyo trading. The yield on the benchmark 10-year JGB was marginally higher than just above 0.5%.


The market’s focus this week will be the 4Q GDP data as well as the BOJ policy meeting which will conclude this Friday.


BNP Paribas had priced in the YCC band widening to +/-100bps into the January meeting, just like other market players. It therefore initiated short 10-year swaps to prepare for the change. 10-year swaps did rise to above 1%, but the BoJ not only left the policy unchanged then but also added easing measures such as extending the pooled-collateral loan operation from 2- to 5-year.


The bank noticed some immense short covering in 10-year JGBs after the BOJ decision, and two of the three “YCC bonds” richened substantially, leading to more interest to short into the BOJ’s fixed rate purchase operation.


Further short squeeze has been seen from 27 February when the central bank introduced new SLF (reverse repo or bond lending by the BoJ) rules with likely intention of forcefully reducing its holdings.


10-year JGBs are extremely difficult to trade under all these environments. It cannot cheapen beyond 0.5% due to the YCC, but it cannot rich either, according to BNP. Therefore, the team shifted its focus to 20-year and recommended shorting 20-year JGBs while closing their prior short positions in 10-year IRS.



Swaps bid; Curve steeper

Despite earlier gains in the bond future, 10-year swaps have been bid today and traded 3.5-4.5bps higher of between 0.855% and 0.865%. 2s/10s swaps steepened up by a basis point to just above 66bps, despite earlier paying in 2-year at up to 0.2115% around mid-day. 2-year was last seen traded 0.25bp higher of around 0.17%.


7-year has been busily traded, backed by paying interest there. It went through nearly 5bps higher of above 0.65% in the morning before paying eased to around 0.645% in the afternoon session. 2s/7s swaps steepened up by a basis point to 43.75bps.



New issues

  • Chiba Prefecture priced JPY20bn in 0.750%, December 25, 2033 bonds at JGBs + 25bps.


  • Chubu International Airport sold JPY8.1bn in 0.700%, February 17, 2033 bonds.


  • Daiei Real Estate issued JPY2.5bn in 1.200%, February 09, 2028 bonds.


  • Hiroshima Prefecture priced JPY10bn in 0.750%, February 24, 2033 bonds at JGBs + 25bps.


  • JFC raised JPY20.9bn via selling the following bonds:


    • JPY10.9bn, 0.354%, March 10, 2028 at JGBs + 14bps.

    • JPY10bn, 0.116%, February 10, 2026 at JGBs + 12bps.


  • JIC issued JPY20.5bn in 0.090%, March 20, 2024 bonds.


  • JEHDR sold JPY10bn in 1.259%, March 31, 2043 bonds.


  • KPP Group Holdings Co Ltd issued JPY10bn in 1.120%, March 09, 2028 bonds.


  • Nankai Electric Railway priced JPY10bn in 0.629%, February 09, 2028 bonds at JGBs + 41bps.


  • Nippon Steel raised JPY50bn via selling the following bonds:


    • JPY20bn, 1.150%, February 18, 2033.

    • JPY30bn, 0.564%, February 17, 2028 at JGBs + 35bps.


  • Osaka Prefecture sold JPY20bn in 0.777%, March 30, 2033 bonds.


  • Shizuoka Prefecture raised JPY20bn via selling bonds in two equal tranches as follows:


    • 0.304%, February 20, 2027 at JGBs + 12bps.

    • 0.750%, April 20, 2032 at JGBs + 25bps.


  • Sumitomo Osaka C priced JPY5bn in 0.669%, February 09, 2028 bonds at JGBs + 45bps.


  • Tohoku Electric Power Co raised JPY15bn via selling the following bonds:


    • JPY10bn, 1.280%, February 25, 2033.

    • JPY5bn, 1.640%, March 25, 2043.


  • Toyobo Co priced JPY20bn in 0.634%, February 09, 2028 bonds at JGBs + 42bps.