The recurring tensions between the US and Iran trigger volatility in Japanese bonds, putting pressure on ultra-long maturities and steepening the yield curve.
- Japanese government bond futures opened lower on Monday, dropping 27 ticks from last Friday to 127.48 and further declining in early trading to an intraday low of 127.46. The main drag came from risk-off sentiment triggered by uncertainty over US-Iran peace talks.
- As US Vice President Vance and Iranian officials held their first meeting and negotiations made progress, market panic eased somewhat. Buy orders emerged at lower levels, pushing the short end, as well as five-year and ten-year yields, down from their morning highs, though selling pressure on the ultra-long end remained obvious.
- The yield curve displayed steepening characteristics, with the ten-year yield rising 3 basis points to 2.675%, and the thirty-year yield briefly climbing 4 basis points to 3.875%. Some 1940s and thirty-year bond varieties faced selling pressure due to demand for curve inversion correction.
- In terms of capital flows, domestic regional banks and life insurers acted as buyers at the short end, with some funds likely coming from reinvestment demand after a large volume of government bonds matured two days earlier. In the afternoon, regional accounts, pension accounts, and offshore accounts became sellers at the short to medium end, highlighting clear divergences between bulls and bears in the market.
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