A part of the Japanese fixed-income market that usually gets attention only from bond nerds is signaling a lack of short-sellers betting on a central bank policy tweak next week.
(Bloomberg) — A part of the Japanese fixed-income market that usually gets attention only from bond nerds is signaling a lack of short-sellers betting on a central bank policy tweak next week.
The so-called calendar spread — the difference in price between the current quarter’s 10-year bond futures contract and the following one — has narrowed from levels seen in the first three months of the year. The gap would usually widen if there had been a build up of short positions that need to be rolled over from one contract to the next — the June future is set to expire next week.
“In past rolls, futures had a quite large calendar spread because investors, mainly foreigners, were betting that the Bank of Japan would tweak policy,” said Shoki Omori, chief desk strategist at Mizuho Securities Co. in Tokyo. “There will be some increase in shorts ahead of the monetary policy meeting and the last trading day of the June futures contract but the momentum is going to be weak” given any policy change is unlikely.
BOJ watchers have pushed back their forecasts for the timing of policy adjustments after Governor Kazuo Ueda’s repeated signaling of the continued need for monetary stimulus, according to a Bloomberg survey. While July is seen as the most likely time for a policy change, only a third of respondents expect it.
Foreign investors bought a net ¥599.4 billion ($4.3 billion) of 10-year futures last week after two weeks of selling, the latest data from Osaka Exchange Inc. showed.
Still, the BOJ’s ultra-accommodative policy stands in sharp contrast with other central banks especially after an unexpected rate hike in Australia and Canada this month. That threatens to exacerbate recent yen weakness, fueling further price growth in Japan and giving a fresh headache to BOJ policy makers.
“The pressure will come back very quickly if the BOJ continues to take their time,” said Aninda Mitra, head of Asia macro and investment strategy at BNY Mellon Investment Management. “They clearly don’t have until the end of 2024 so the real question is: will they do something at the upcoming meeting next week or the following meeting in July?”
–With assistance from Yumi Teso.
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