JGBS: Holding Firmer, Just
Events offshore largely drove JGBs on Wednesday. Initially, we saw cross-market spill over surrounding Australian data, as well as potential short trimming in lieu of reduced expectations for meaningful BoJ policy shifts in the immediate term (outside of YCC tweaks), support the JGB space in the Tokyo morning. Firmer than expected Chinese PMI data helped to cap the bid ahead of the lunch break, before applying some light pressure early in the Tokyo afternoon. That move extended into the close, with a lack of overt drivers present.
- Futures finished +4, comfortably shy of best levels. Technically, the contract is in a holding pattern.
- Cash JGBs sit little changed to ~1bp richer late on, with 7s leading, aided by the bid in futures. 10-Year JGB yields continue to hover incrementally below the BoJ’s YCC cap of 0.50%.
- BoJ board member Nakagawa stuck to the BoJ’s central line re: the need for continued monetary easing at present, while outlining question marks re: the scale of broad wage hikes that will be implemented in the immediate term and pointing to a fairly concentrated inflationary spike, which he expects to moderate soon.
- 10-Year JGB supply, an appearance from BoJ’s Takata and Q4 corporate performance data headline the domestic docket tomorrow.
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EURGBP TECHS: Outlook Remains Bullish
- RES 4: 0.8992 61.8% Retracement of the Sep 26 - Dec 1 bear leg
- RES 3: 0.8980 High Sep 29
- RES 2: 0.8907 50.0% retracement of the Sep 26 - Dec 1 bear leg
- RES 1: 0.8852/97 High Jan 25 / 13 and the bull trigger
- PRICE: 0.8768 @ 06:01 GMT Jan 30
- SUP 1: 0.8761/22 50-day EMA / Low Jan 19
- SUP 2: 0.8691 Low Dec 19
- SUP 3: 0.8630 76.4% retracement of the Dec 1 - Jan 13 bull cycle
- SUP 4: 0.8593 Low Dec 15
EURGBP traded lower again Friday but the cross remains above the key short-term support at 0.8722, the Jan 19 low. A break of this level is required to reinstate a recent bearish threat. For bulls, a resumption of gains would expose resistance at 0.8897, the Jan 13 high and a bull trigger. Clearance of this level would confirm a resumption of the bull cycle that started early December last year.
JGBS: Curve Twist Steepens, Comments From Potential BoJ Deputy Get Some Airtime
JGB futures are 25 ticks firmer on the day into the bell, a touch off highs, after closing the Tokyo CPI gap lower to the tick.
- Early afternoon trade saw some pressure on comments from Japan Research Institute Chair Yuri Okina, who noted that there needs to be a rethink of the BoJ-government accord, as she outlined her preference for the Bank’s inflation target to be shifted to a longer-term goal (as press reports have suggested will be the case). Okina also identified a desire to foster bond market normalisation and a recovery in the function of interest rates within the monetary policy framework. Note that there is speculation Okina could become a Deputy Governor at the Bank after the impending leadership reshuffle. She then stressed that wage growth and fiscal sustainability are pre-requisites for monetary policy normalisation (in line with the BoJ’s central tone).
- JGB futures firmed to fresh session highs after a blip lower, while the super-long end of the curve cheapened, resulting in twist steepening of the curve. Swap rates out to 10s were lower, although swap spreads there widened, while 20+-Year swap spreads also widened, as moves higher in those rates outstripped yields.
- This came after BoJ Governor Kuroda reiterated well-trodden themes.
- The space also drew support from some light richening in U.S. Tsys and subdued offer to cover ratios at today’s BoJ Rinban operations.
- A reminder that the BoJ will issue its Rinban plan for the month of February after hours.
- Further out, flash industrial production, retail sales and labour market data headline the domestic docket on Tuesday.
GILT TECHS: (H3) Pullback Considered Corrective
- RES 4: 107.06 High Nov 24 and key resistance
- RES 3: 106.23 High Dec 9
- RES 2: 106.18 High Dec 12
- RES 1: 106.00 Round number resistance
- PRICE: 104.64 @ Close Jan 27
- SUP 1: 103.79 Low Jan 23 and key short-term support
- SUP 2: 103.21/102.78 Low Jan 17 / High Jan 6
- SUP 3: 102.19/101.40 Low Jan 11 / 10
- SUP 4: 99.97 Low Jan 3
Gilt futures remain in an uptrend and the latest pullback is considered corrective. Recent trend highs confirmed a resumption of the short-term uptrend. The move signals potential for a climb towards 107.06, the Nov 24 high and a key resistance. The first objective is 106.00. Initial firm support has been defined at 103.79, the Jan 17 low. A break would threaten the current bullish theme.
