JPY Swaps: 10y JGB yield to rise to 0.8% on YCC tweak; Longs given

BOJ side
BofA expects 10y JGB yield to rise to up to 0.8% should there be a YCC tweak tomorrow. Long-dated JPY swaps saw receiving around mid-day.

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  • A YCC tweak would push 10y JGB yield 0.8% - BofA

  • Long-end given after earlier 2-way interests

  • New issues


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A YCC tweak would push 10y JGB yield 0.8% - BofA

In a research piece released on Wednesday, BofA said it expected no YCC changes at the new BoJ leadership Ueda’s first MPM which would conclude tomorrow. However, given Ueda's recent comments about the difficulty of incremental YCC adjustments, the bank would not rule out the possibility that the central bank would remove YCC altogether while continuing to intervene heavily in the markets to contain the rise in front-end yields.


BofA noted that wage growth would prompt further ex-fresh food and energy inflation which has already been shifting away from imported goods to services. However, the recovery in underlying inflation is fragile. “While we are increasingly optimistic that a ‘positive’ wage-price spiral is taking shape and now attach a higher probability to a re-anchoring of inflation to 2% compared to a year ago, we are not yet confident in making it our base case,” it said in the piece.


Nevertheless, the continued build-up in Japan's underlying inflation pressures, coupled with Ueda's recent communications, make BofA believe that the new BOJ leadership would “flexibilise” YCC long-rate control within the next few months. Currently, BofA bets the MPM in June to be a likely timing for policy changes.


BofA also considered the possibility of a policy tweak at the April meeting. Under such a risk scenario, the 10-year JGB yield could rise to around 0.75% if the YCC ceiling is raised to 1%, and to around 0.80% if YCC's target maturity is shortened to 5-year.



Long-end given after earlier 2-way interests

JGB future followed the USD rates market weaker at the open, but erased all the losses between mid-morning to mid-day to mark up to 7-ticks higher of 148.11. The downward momentum then resumed after ex-BOJ deputy governor Masazumi Wakatabe told Bloomberg that the BOJ might tweak its forward guidance to drop its reference to Covid-19, although he also mentioned that he would be surprised to see any key policy changes tomorrow.


At time of writing JGB future was down 3-ticks at 148.01, after falling by as much as 8-ticks intraday. The yield on the benchmark 10-year JGB was marginally higher at 0.46%.


Trading in outright swaps has been mostly at the long-end of the curve with 2-way interest in the morning, then better paying around mid-day. 10-year went through up to 2bps higher or 0.6275%, while 15-year was up a basis point to 0.855%. 20-year saw slightly better receiving in the morning when it traded around 0.5bp lower. It was last seen changing hands about a basis point higher of 1.025%



New issues

  • Cosmo Energy Holdings Co Ltd sold via Nomura JPY15bn in 0.54%, May 9, 2028 bonds.


  • Sumitomo Realty & Development Co Ltd issued via Nomura JPY40bn in 0.49%, August 9, 2028 bonds.