JPY Swaps: Strong and busy 10y offers; SL move flattens 10s/20s and 10s/30s

Chart 24 Nov 2021
The JPY rates market has tracked the US market and spikes higer. 10s/20s and 10s/30s swaps flattened out despite strong and busy 10y offers.

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  • 10y JGB yield dips to recent low

  • 5s/10s JGBs seen steeper – Barclays

  • Busy and strong 10y offers; SL flattens 10s/20s and 10s/30s

  • New issues


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10y JGB yield dips to recent low

JGB future spikes on Monday, tracking the sharp rally in US treasuries on Friday.


US treasury yields tumbled on Friday as the latest jobs data indicated a higher-than-expected jobless and underemployment rate in February but slower-than-expected wage growth. These were all on top of the continued worries over the economic situation in the US following the collapse of Silicon Valley Bank (SVB).  2-year US treasury yield, which fell by almost 30bps on Friday, continued its dive and plummeted by more than 20bps in Asia trading today. Traders scrambled to revise their US interest rate outlook with the market currently pricing in 25bps of interest rate hike this month, down from prior expectations of half a point of hike. At the same time, the market now forecasts a 25bp rate cut by the end of 2023.


Market participants noticed the sharp move in the market has been driven by short-covering so far. A strategist from SBI Securities reckoned limited scope for the BOJ to exit its ultra-loose monetary policy if US treasury yields continue such a downtrend.


JGB future opened more than 40-ticks higher, and was up by 72-ticks soon after lunch break before closing the day 57-ticks higher of 146.72. the yield on the benchmark 10-year JGB was nearly a basis point lower at its recent low of 0.302%, or the lowest since December 2022.



5s/10s JGBs seen steeper - Barclays

Nevertheless, Barclays still expect the BOJ to reach a decision at the next MPM to shorten the YCC target from the 10y sector with a band of 0% +/-0.5pp to the 5y sector with a band of 0% +/0.25pp. On that assumption, the team continues to see scope for the 5s/10s JGBs to steepen from the current level of around 30bp level to around 60bp, suggesting substantial room for outperformance.



Busy and strong 10y offers; SL flattens 10s/20s and 10s/30s

10-year swaps have been busily traded since market open, backed by strong receiving interest there. It started off the day 3-4bps lower, and was quickly offered down 7-8bps of 0.71%-0.72% in the morning session, and traded down to 0.705% after lunch break.


The sharp rally in the bond future also prompted receiving in 7-year at down to 2.5bps lower of 0.56%. It was then offered down to 0.505% near market close.


Elsewhere the yen recovered markedly against the USD in domestic trading today. The pair, which traded up to near 137 in the US session on Friday, tipped to below 133.57 in domestic trading, prompting receiving at the superlong-end too. 20- and 30-year, for example, traded down to 1.085% and 1.1325% respectively, down more than 10bps from previous close.


10s/20s and 10s/30s swaps were 1bp and 1.5bp flatter at 38.75bps and 42.5bps respectively.



New issues

  • Organization for Promoting Urban Development sold JPY10bn in 1.183% March 23, 2043 bonds.