JPY Swaps: Light 10y offers; Currency intervention looms

Samurai
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Players have avoided superlong JPY swaps as currency intervention may kick in. 10y swaps saw light offers. Korean Air is planning a 3y Samurai.

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  • SL cautious as FX intervention looms; Light 10y offers

  • New issues – Korean Air Lines plan 3y Samurai

 

Click here for SDR JPY IRS trades

 

SL cautious as FX intervention looms; Light 10y offers

JGB future was down by 7-ticks in the morning but erased all the losses soon after to mark 26-ticks higher in mid-morning domestic trading. The rally continued after lunch break after domestic data.

 

Official data released earlier today showed that industrial production in April was forecast to be down 0.7% year-on-year, compared to 0.3% worth of contraction in the previous period. On a month-on-month basis, it was predicted to grow 0.7%, up from 0.4% of contraction in March.

 

This was in line with the latest BOJ decision which suggested that the economy was not in a position for any monetary policy tightening. Indeed, BNP Paribas believes that the market looks to have taken Ueda’s message as extended hold, and recommended to close the 7s/10s flattener and the long 10-year swap spread trade that it recommended ahead of the BOJ MPM

 

The spotlight in the Japanese market today was the currency move. USD/JPY touched the 142 level briefly in overnight trading and rose further in domestic trading today to up to 142.25. This has prompted intervention expectations especially after Finance Minister Shunichi Suzuki said earlier today that he would be closely watching the currency move and take appropriate action.

 

As such, the superlong-end has been very inactive despite the drastic currency move. Flow wise, there has been a couple of receiving in 10-year, echoing the move in the underlying cash bond market. 10-year traded down to 0.555% around mid-day, down from previous close of 0.575%.

 

2s/10s swaps flattened out by 1.5bps to 50.75bps while 10s/20s swaps were little changed at around 37.5bps.

 

 

New issues – Korean Air Lines plan 3y Samurai

  • Korean Air Lines Co Ltd is planning a 3-year Samurai bond at 65-70bps over mid-swaps. Leads are BNP Paribas, Daiwa and Mizuho and the deal will be guaranteed by KEXIM.

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