JPY Swaps: Early 20y bid steepens 10s/20s; Short-term policy rate seen changing

Steep road
The yen move has prompted some superlong JPY swaps flow, steepening 10s/20s intraday. 10y was briefly offered.

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  • Market seen pricing in a change in short-term policy rates

  • Earlier 20y bid steepens 10s/20s

  • New issues


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Market seen pricing in a change in short-term policy rates

JGB future was firmer today, tracking the move in the US and European market on Friday as latest data from France and Germany pointed to a higher risk of a recession there. The excessive interest rate hikes in the US, which would continue according to the US officials, would put US in the same situation. In mid-afternoon Tokyo trading JGB future was up 16-ticks at 148.94, and the yield on the benchmark 10-year JGB was down 0.5bp at its recent low of 0.356%.


The demand for JPY rates was also backed by domestic data missing forecast. Official data released earlier today showed that PPI Service in May was up by 1.6% year-on-year, unchanged from April but below economists’ expectation of 1.8%


Elsewhere, USD/JPY made an upside break above 143.5 in domestic trading today. Players expect hawkish comments from the US, if any, to drive the yen weaker while NAB is looking to see an intervention when USD/JPY is between 145 and 150.


The spread between 2-year USD and JPY swap rates have widened considerably since May when it was down to around 400bps. The spread was marked at above 489bps last week but was about 2.5bps tighter at 487bps today. Citigroup believes the divergence between short-dated USD and JPY rates would prompt the market to price in a change in short-term policy rates.



Earlier 20y bid steepens 10s/20s

Swap trading has been mostly from the 10-year point. Dealers said the currency move has contributed a lot to the flow especially at the superlong-end. 20-year, for example traded up to 1.5bps higher of 0.935% before being marked 1.25bps lower of 0.9075% at time of writing. 10s/20s swaps steepened up by a basis point to 40bps intraday.


10-year was paid up traded up 2.75bps in early-morning domestic trading before last seen changing hands unchanged of 0.53%.



New issues

  • Mitsubishi Corp has mandated Citigroup, MS and JP Morgan for a possible 144A/Reg S 5-year benchmark USD-denominated bond offer.