JPY Swaps: 10s/20s flatter; BOJ to stand pat despite tighter deficit?

BOJ building sign
Japan's trade deficit in March was narrower than the forecast, but the long-end of the swap curve was better offered. Players expect BOJ to stand pat.

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  • BOJ to be on hold despite tighter trade deficit

  • 10s/20s steeper as 10y outperforms

  • New issues


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BOJ to be on hold despite tighter trade deficit

JGB future opened firmer, contrasting the selloff in the USD rates market in overnight trading and stronger-than-expected data, but trimmed gains after lunch break after slightly disappointing 20-year JGB auction.


Official data released earlier today showed that the trade deficit in Japan surprising tightened from JPY898bn in February to JPY754.5bn in March. Economists had expected it to widen to JPY1.29trn. It was mostly due to a much weaker grow in import, from 8.3% year-on-year last month to only 7.4% in March. The market had tipped it to grow to 11.6%. Exports grew at 4.3% year-on-year, beating consensus of 2.4% but lower than previous growth of 6.5%.


Earlier today, the MOF sold JPY1.1992trn worth of its JPY1.2trn 20-year 1.1% JGBs (Number 184) at tender. The auction drew bids worth 2.96 times, up slightly from 2.85 times last month. Average yield was 1.085% and the tail tightened from 0.67 to 0.18.


A dealer said the tighter trade deficit was due mainly to lower energy prices and so it did not reflect fully the situation in Japan. Indeed, the slowdown in exports was a more worrying issue for market players, backing some demand for JPY rates. Players also expect the new BOJ Governor to leave the ultra-loose monetary policy unchanged when the board meets next week, dampening any strong selling interest in JPY rates.


JGB future finally closed the day 7-ticks higher at 147.48, and the yield on the benchmark 10-year JGB was about a basis point lower at 0.468%.



10s/20s steeper as 10y outperforms

The yen weakened against the USD to levels near 135 soon after the trade data, but the trend reversed and the pair traded down to below 134.3 in the afternoon session. Expectations about further strength in the yen have supported receiving in 20-year swaps which traded down to 2.5bps lower of 1.03% after lunch break.


The gains in the underlying JGBs have also backed offered-side flow in 10-year although there was very light paying at the open at about 0.5bp higher. A dealer reported trades at 0.65% intraday, compared to previous close of near 0.68%.


The outperformance in 10-year saw 10s/20s swaps steepening by 2.75bps to 40.25bps at time of writing, of the steepest since late-March.



New issues

  • JFM sold the following bonds:


    • JPY3bn, 1.48%, March 26, 2055.

    • JPY3bn, 1.232%, April 26, 2033.

    • JPY20bn, 0.703%, March 26, 2032.

    • JPY4bn, 0.811%, November 25, 2033.

    • JPY7bn, 1.461%, March 26, 2054.


  • JERA Co Inc raised JPY40bn via selling the following bonds:


    • JPY25bn, 0.64%, April 25, 2028.

    • JPY15bn, 0.9%, April 25, 2030.