The bond market is a mess.
There used to be periods where you went years without +3 basis point auction misses and now we’ve had two this week. Yesterday’s 10-year sale was extremely strong and today’s 30-year reopening was terrible, with a tail of 3.2 bps.
Some combination of illiquidity and Japanese mechanics is likely behind the change in the market but it’s an unneeded source of volatility. The market is waiting for a new BOJ Governor announcement imminently so maybe we settle down after that?
For now, the jump in 30s has pushed up the long end of the curve.
That’s helped to undo some of the inversion. Before the auction, 2s10s were on track for a multi-decade extreme in inversion at -85 bps.
It’s also spilled over to the FX market with USD/JPY now down just 9 bps to 131.28 on the day. Stock markets haven’t worsened since the sale but remain near session lows and that could spark the next leg in USD demand.
As for USD/JPY, this is a good sign that the bottom is in for now but it will take a rally over 133.00 to add any conviction, and a weekly close above that would help as well.
