Rates as of 0500 GMT

Market Recap

Currencies are really moving! The widening Japan rate differential with the rest of the world has lifted USDJPY to the highest level since Oct. 2, 1998, while GBPUSD, which has been the worstperforming G10 currency for three days in a row, momentarily broke through 1.20 on the downside, the first time since March 2020.

The Bank of Japan hasnt done anything to narrow the rate gap. On the contrary, yesterday it bought a record JPY 2.2tn in Japanese government bonds JGBs through its fixedrate operation to keep the 10year yield within its target range of 25 bps of 0.

The BoJ doubled down on Wednesday. As the JGB futures fell by the most since 2013, the BoJ announced unlimited purchases of cheapesttodeliver  CTD 10year bonds Thursday and Friday the Friday purchase being particularly significant as thats the day of the Bank of Japan meeting.

CTD bond  A wide variety of bonds can be delivered against the futures contract. The cheapesttodeliver bond is the one thats the cheapest to use if you sell futures and choose to deliver bonds instead of closing out your contract before it expires. The price of the futures therefore tends to trade in line with the price of the CTD bond, because otherwise an arbitrage opportunity arises.

Notice though how the yield curve is bulging in the 79 year sector. These rates are higher than the 10year bond, which is what the BoJs yield curve control YCC program targets. Its an indication of where the…