HALISTER1: JAPAN RATES WEEKLY: JGBs Vols Rise on Uncertainty Over BOJ View

JAPAN RATES WEEKLY: JGBs Vols Rise on Uncertainty Over BOJ View

(Bloomberg) -- Actual volatility of Japanese government bonds is set for weekly advance, first in four weeks as super-long tenors swing amid uncertainty over BOJ’s policy direction and strong results from 30-year JGB auction.
  • Steepening trend of sovereign yield curve pauses while 10y-30y spread swung widely this week
    • Click here for a weekly change in the sovereign yield curve and here for a market snapshot
  • 30-day price volatility on Japan’s bonds with maturity of more than 10 years rose 5.45 bps this week through Sept. 8 to 7.083%, according to Bloomberg data
  • USD/JPY heads for biggest weekly decline in 6 wks
  • BOJ studying options to steepen bond yield curve, Reuters reports on Sept. 9
  • Governor Kuroda said on Sept. 5 any additional monetary easing entails costs, but won’t consider cutting level of policy accommodation
  • PM Abe’s adviser Hamada said on Sept. 6 BOJ should wait for Fed before acting
  • BOJ won’t expand stimulus this month, former BOJ executive Momma said on Sept. 7
  • BOJ Deputy Governor Nakaso’s said on Sept. 8 the central bank will decide at its policy meeting this month whether it’s necessary to adjust its current easing program
  • MOF proposed 40-year JGB issuance boost by 400b yen for fiscal year on Sept. 8
  • 30-year bond auction drew higher bid-to-cover ratio, tops estimate on Sept. 6 and 5-year bond auction drew lowest bid- to-cover ratio in 11 months
    • Finance Ministry to auction 1.1t yen of 20-year bonds on Sept. 13 and 200b yen of enhanced-liquidity on Sept. 15
  • NOTE: JGBs worth about 19t yen ($184b) will mature this month (excluding T-bills, linkers and floating bond), with large proportion Sept. 20, according to data compiled by Bloomberg
  • WHAT THEY SAY
  • Sumitomo Mitsui Asset Management (Jun Fukashiro, senior fund manager)
    • Speculation about possible reduction in QE size, in the form of providing more flexibility to amount of govt bond purchases, resumed, triggered by remarks from BOJ Deputy Governor Nakaso
    • The BOJ also skipped repurchases of long-end bonds in operation today, boosting view they may want to steepen the curve; this led to some increase in yields
    • JGB markets may remain unstable until BOJ meeting later this month
    • Focus next week will be the 20-year note auction and U.S. data that may provide some clue to the Fed’s rate hike outlook
  • Mitsubishi UFJ Trust & Banking (Hideo Suzuki, chief manager of forex and financial products trading)
    • Key factor driving JGB markets next week will be 20-year note auction; 20-year yield rebounds above 0.4%, easing concern about weak auction results
    • Any weak auction may lead to bond selling temporarily but yields may be range bound ahead of the BOJ meeting this month
    • BOJ unlikely to reduce QE amount from 80t yen or provide the range for QE amount to make the average purchase amount at 80t yen; it may expand negative rates if needed
    • All in all, rise in yields of bonds with 10 years or less may be limited and unlikely to rise above zero
  • MassMutual Life Insurance (Satoshi Shimamura, head of rates and markets at investment strategy department)
    • Steepening of curve is likely to end while volatility may continue toward policy meeting later this month
    • While issuance of super long-end bonds increases, BOJ won’t probably have an option to reduce amount of bond purchases
    • Governor Kuroda may say the flattening move after introduction of negative interest rates was excessive and would consider the negative impact on the economy
    • 20-year auction may not be too bad if the yield is around 0.4%; there’s speculation about life insurance companies buying the super long-tenor notes
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Hideo Suzuki (Mitsubishi UFJ Financial Group Inc)
Jun Fukashiro (Sumitomo Mitsui Asset Management Co Ltd)
Satoshi Shimamura (Massachusetts Mutual Life Insurance Co)

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