HALISTER1: JAPAN RATES WEEKLY: JGB Yields Hit Record Lows on Brexit Risks

JAPAN RATES WEEKLY: JGB Yields Hit Record Lows on Brexit Risks

(Bloomberg) -- Japan’s sovereign bond curve flattens as yields for 5-, 10-, 20-, 30- and 40-year debt reach record lows, tracking global bond rally on haven demand ahead of U.K’s Brexit vote and after dovish tone at FOMC meeting.
  • Click here for weekly change in yield curve and here for market snapshot
  • Yields at record lows were 5-year at -0.305%, 10-year at -0.210%, 20-year at 0.090%, 30-year at 0.150% on June 16 and 40-year at 0.195% on June 17
  • BOJ maintained monetary policy on June 16; voted 8-1 to keep monetary base target unchanged, 8-1 to hold asset-purchase program, and 7-2 to maintain negative rate policy
  • Governor Kuroda said at press conference after BOJ meeting that the central bank won’t hesitate to add stimulus if necessary, and he’s still expecting inflation to reach a 2% target in fiscal 2017; adds BOJ is in close contact with other central banks including Bank of England over the U.K. referendum
  • Yen surged to 103.55 against dollar, highest since August 2014 after BOJ maintained monetary policy on Thursday
  • Combined holdings of international investors and BOJ in Japanese T-bills increased to 88.4% in 1Q, the highest proportion ever and up from 83.3% in 4Q, according to BOJ’s Flow of Funds data on June 17
  • BOJ board member Kiuchi speaks on June 23 and BOJ Deputy Governor Nakaso speaks on June 24
  • Govt to hold enhanced-liquidity auction on June 21 and to sell 3-mo. bills and 20-year bonds on June 23
  • JGBs worth about 18t yen ($173b) will mature this month (excluding T-bills, linkers and floating bond), with large proportion June 20, according to data compiled by Bloomberg
  • WHAT THEY SAY
  • Barclays (Naoya Oshikubo, rates strategist)
    • There is some correction from bull-flattening that seems to be overdone, while improving risk sentiment overnight, which helped recovery of stocks in Asia, is also supporting such moves today
    • It will probably be hard for investors to take any significant positions before U.K. vote on June 23
    • There will be large amount of bonds maturing in the next few days, which is improving demand/supply conditions in the market
  • MassMutual Life Insurance (Satoshi Shimamura, head of rates and markets at investment strategy department)
    • JGBs are likely to be well supported across the board before the U.K. referendum
    • Dovish Fed and lingering speculation of further monetary easing by BOJ as well as expected demand from investors whose bonds will mature early next week are supporting the JGBs
    • However, uncertainties about the 20-year note auction on June 23 may steepen the curve of super-long sectors
  • Sumitomo Mitsui Asset Management (Jun Fukashiro, senior fund manager)
    • Investors are unlikely to aggressively bid in 20-year note auction at expensive prices, given recent overheating market condition
    • However, there still seems to be solid demand for debt at reasonable prices, and therefore, auction is likely to go smooth
    • JGB yields will return to stay under trend of gradual declines
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Jun Fukashiro (Sumitomo Mitsui Asset Management Co Ltd)
Naoya Oshikubo (Barclays PLC)
Satoshi Shimamura (Massachusetts Mutual Life Insurance Co)

Topics
BFW Japan Rates Analyst Wrap

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