JPY Swaps: 5-10y bid steeps 2s/5s and 2s/10s; 10y JGB yield near 0.3%

• JGB future slumps; 10y yield near 0.3%

• 5-10y bid steepens 2s/10s and 2s/5s

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JGB future slumps; 10y yield near 0.3%

JGB future plummeted today, tracking similar move in the USD rates market on Tuesday.

In overnight trading, there was a sharp bear flattening of the USD rates curve as front-end US treasury yields rose by up to 18bps as traders revised their interest rate outlook. The market priced in terminal rate at 4.94%, up from the 4.91% on Monday, and 88% chance the Fed would hike rate by 25bps tomorrow.

The lead bond future was down by 80-ticks soon after market open, and trimmed losses in mid-morning domestic trading to mark 52-ticks lower. In mid-afternoon Tokyo trading it was down 72-ticks at 148.27, and the yield on the benchmark 10-year JGB was 5bps higher at 0.295%.

5-10y bid steepens 2s/10s and 2s/5s

Dealers said the theme for today has been mostly about turning the attention to the US Fed. Some market participants realised the sharp rally in rates in the most recent sessions could be a bit excessive given the US Fed would not cut rate at least in the upcoming policy meeting. This has supported some good amount of activities in 10-year on the other side of the fence today. A trader reported trades at mostly between 0.585% and 0.595% in the morning, although there were also flows at up to above 0.61%. It then traded in a tight range around 0.605% in the afternoon session. These compared to Monday’s close of 0.525%.

2s/10s swaps steepened up by 4.75bps to 49.25bps despite paying in 2-year at 3.5bps higher of 0.115%.

5-year traded in several clips at up to 0.295% in the morning session. It was last traded 6.5bps higher of 0.26%, steepening 2s/5s swaps by 3bps to 14.5bps.