JPY Swaps: Flatter from 10y ahead of BOJ and US Fed

Deflated old football 21 Jun 2021
Players have been cautious ahead of BOJ and the US Fed, and the curve flattened out from the 10y point. Recent rally at the SL seems excessive.

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  • JGB future turns weaker

  • Flatter from 10-year; SL rally excessive

  • New issues


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JGB future turns weaker

Following 3 consecutive days of gains, JGB future turned weaker today following the selloff in USD rates in overnight trading, which was in turn backed by players preparing for another US Fed hike tomorrow. The dampened demand in JPY rates was also driven by better appetite in riskier assets, as USD/JPY re-climbed to levels above 140 on Tuesday and traded confidently above such level in domestic trading on Wednesday.


In mid-afternoon Tokyo trading JGB future was down 18-ticks at 148.08, and the yield on the benchmark 10-year JGB was up more than 1.5bps at 0.434%.



Flatter from 10-year; SL rally excessive

The market has not been very active before the BOJ MPM which will begin tomorrow. Most of the market players expect no change to any policy or the YCC this month, but perhaps some slight tweaks to the YCC in July or August.


Outright swap trading has also been subdued before the US Fed decision tomorrow. A dealer noticed some decent amount of paying in 10-year 1W forward at up to 0.635%.


2s/10s swaps were little changed. The weakness in the yen has driven some price action in front-end swaps and 2-year was marked more than 0.5bp higher intraday, while 10-year was marked almost unchanged at time of writing.


The move in the currency market also prompted some forward paying in 20- and 30-year swaps. However, a dealer reckoned the move was also due to excessive rally in these tenors over the past 2 months. 30-year swaps, for example, have rallied by almost 10bps since mid-April.  


10s/20s and 10s/30s swaps were 0.25bp and 0.75bp flatter at 37.75bps and 44.75bps respectively.



New issues

  • Tokyo Metropolitan Government issued JPY20bn in 0.676%, March 18, 2033 bonds at JGBs + 24bps.