JPY Swaps: Early 2y bid on FX; Longs given; Dovish Ueda; Strong 5y sale

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Dovish Ueda has triggered the weakness in JPY and thus some early paying in front-end swaps. Longs were given after strong 5y JGB sale.

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  • JGB future firmer after good 5y sale

  • CBA tips higher chance of BOJ tightening

  • Early 2y bid amid FX move; 10-20y given


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JGB future firmer after good 5y sale

JGB future rebounded today, as an aftermath of dovish comments by incoming BOJ Governor Ueda who said on Monday that it was appropriate to keep the ultra-loose monetary policies unchanged for now. The demand for JPY rates was further boosted by stronger-than-expected 5-year JGB sale.


Earlier today, the MOF sold JPY2.4991trn worth of its JPY2.5trn 5-year 0.2% JGBs (Number 157) at tender. The auction drew bids worth 3.95 times, up from 3.26 times last month. Average yield was 0.157% and the tail narrowed from 0.05 to 0.01.


The lead bond future closed the day 24-ticks higher at 147.81, after raising by 35-ticks soon after the 5-year sale. The yield on the benchmark 10-year JGB was down almost a basis point to 0.453%.



CBA tips higher chance of BOJ tightening

Despite Ueda’s remarks, CBA still believes that it’s more likely for the BOJ to tighten amid recent uptrends in inflation and wages. The bank predicted USD/JPY, which rose by 1.1% on Monday after Ueda’s comments, to rise to around 134.68 if the global financial markets revise up expectations for the FOMC Fed funds rate. Indeed, the pair jumped to 133.87 in overnight trading, and traded up to 133.7 in domestic trading today.



Early 2y bid amid FX move; 10-20y given

The weakness in the yen saw paying interest at the front-end of the swap curve in earlier trading. 2-year therefore traded a tad higher of 0.11625% at the open although such trend has failed to sustain. It was then offered down to just below 0.1% in mid-morning domestic trading before lunch break being marked below 0.1% at time of writing.


2s/10s swaps, however, flattened out by almost a basis point to near 53bps amid receiving in 10-year. A dealer noticed offered-side flow in 10-year at between 0.62% and 0.6225%, down from previous close of about 0.65%.


At the superlong-end, 20-year was offered down to below 1% at the open, but traded in a tight range around 1.005% after mid-day. These compared to Monday’s close of 1.0225%. 10s/20s swaps were marked 2.5bps steeper to 39.5bps.