JPY Swaps: Future slumps after data; SL given after earlier bid

• JGB future slumps after strong data

• 20y given after earlier bid, flattens 10s/20s

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JGB future slumps after strong data

JGB future slumped further today, and was down by almost half a tick before lunch break before being marked 19-ticks lower at 148.12 in late-afternoon trading. The yield on the benchmark 10-year JGB was a basis point higher at 0.322%.

The selloff in JPY rates was driven mainly by stronger-than-expected domestic data.

Official data released earlier today showed that retail sales in February was up 6.6% year-on-year, up from 5% in the previous month and above economists’ expectation of 5.8%. Inflation in Tokyo as 3.3% in March. Although it was down from 3.4% in February but the market had expected it to cool to 3.1%. This set of data has offset the effect of the higher-than-expected jobless rate in February, which was 2.6% versus consensus of 2.4% as in January. Industrial production was predicted to rebound sharply from a 5.3% contraction in January to 4.5% in February.

20y given after earlier bid, flattens 10s/20s

Although comments from several BOJ officials this week were dovish, the market has begun to re-access the possibility of policy tightening given the recent data, although some still believe that the BOJ would stay dovish.

Swaps have been mostly bid, tracking the move in their underlying JGBs. 10-year was paid up to near 0.65% soon after the release of the data. There were some sporadic and small-sized receiving there after lunch break when it traded down to a basis point lower of 0.585%. 5-year traded 0.25bp-1.25bps higher and was last seen changing hands just 0.25bp higher at 0.2825%. 20-year saw relatively busier flow and traded up to 1.5bps higher soon after lunch break. Receiving then emerged and it traded down to 1.75bps lower.

10s/20s swaps therefore flattened out by 1.75bps to 36.75bps.