EURGBP TECHS: Sights Are On Trendline Resistance

Pressure from the spill over stemming from Tuesday’s moves in wider core global FI markets lingered in the belly of the JGB curve, with limited reaction to the BoJ deploying an unscheduled round of Rinban purchases covering 5- to 25-Year paper as it looked to fend off the latest upside breach of its YCC band (which has lingered, although the 0.51% level has not been touched as of yet, with 10-Year JGB yields operating between there and 0.50% for almost all of the session, last printing in that range ahead of the close).

• Futures edged away from session lows alongside wider core global FI markets, before another modest uptick was seen after the Rinban purchases were announced. The contract is -13 at the bell, while wider cash JGBs were 1bp cheaper to 5bp richer as the curve twist flattened. There wasn’t an overt driver for the super-long end bid, with some pointing towards potential purchases from domestic life insurers (after they sold super-long paper in Jan) and/or BoJ YCC tweak speculation via flatteners.
• Details of the unscheduled Rinban ops revealed an uptick in cover ratios, although the offers that the operations attracted weren’t larger in nominal terms, with cover impacted by the downsizing of the operations vs. scheduled purchases.
• BoJ’s Tamura added little fresh to the policy debate.
• Marginally firmer than expected services PPI data will have added to the pressure in early Tokyo trade.
• JGBs will be closed on Thursday the country observes a national holiday (this may have triggered some short cover in futures into the close).

USD/KRW is down from session highs, after starting the session above 1306, we last tracked in the 1303/04 range. To be sure, we have been range bound for most of the session, but the latest modest move down follows Reuters headlines that the Ministry of Finance will meet with FX dealers later today to discuss won weakness. An MoF official stated the won has been weakening at a faster pace compared to other currencies recently.

• The KRW NEER (J.P. Morgan Index) is down sharply for Feb so far, off around 4%, but we remain well above lows from last year (+8%).
• Rhetoric around FX weakness may reflect concern around a sharp move through the 1300 level in USD/KRW terms. As we noted earlier, the won is the worst performer in the region month to date amid equity and tech headwinds (see this link).
• Today's meeting is unlikely to change the fundamental direction of currency, but clearly official concern is rising. Late last week the MoF noted excessive volatility and herd behavior in FX markets. Yesterday BoK Governor Rhee stated the central bank will respond in a timely manner to unease in financial markets.

TYH3 deals at 111-03+, -0-01+, in the middle an 0-08 range on elevated volume of ~183K.

• Cash Tsys sit 1-2bps richer across the major benchmarks.
• Weakness in JGBs weighed on Tsys in early dealing, TY futures briefly looked below Tuesday's low.
• Spillover from ACGBs in lieu of Australian Q4 wage data aided a recovery from session cheaps in Tsys.
• Tsys were able to marginally extend gains post the RBNZ rate decision, as there was a lack of hawkish surprise in the post-meeting statement and press conference, with unscheduled BoJ Rinban operations also adding support at the margins.
• The richening largely held although Tsys did tick away from best levels.
• In Europe today we have regional and national CPI from Germany. Further out, minutes of the February FOMC meeting headline today’s NY docket. We also have the latest round of 5-Year Tsy supply.