[MARKET ANALYSIS] JGBs under pressure after sources stated that the BoJ is open to a hike faster than every 6 months

Global fixed income benchmarks initially came under pressure given the rise in energy prices (Brent +3.2%); however, fixed income has reversed off its earlier lows, despite a clear driver. Gilts (+8 ticks) trade at the top end of a 86.33-86.69 range, reversing the earlier losses. The broadly positive inflation figure initially failed to support UK gilts. To recap, headline inflation ticked lower to 2.6% Y/Y (exp. 2.7%, prev. 2.8%), while core inflation held at 2.6% Y/Y (exp. 2.5%). Services inflation also fell to 3.6% Y/Y from 3.8%, while food prices fell for a second consecutive month. ING sees the BoE holding rates throughout 2026, with the trend of lower core service inflation and low private-sector wage growth. JGBs (-15 ticks) traded rangebound throughout the Asia-Pac session but have come under recent pressure following a Bloomberg scoop. The report stated that the BoJ is open to a hike faster than every 6 months, while adding that the recent JPY weakness is seen as an upside risk to inflation. The Bank is close to a stage of anchoring, not spurring inflation, the report added. Following this, markets are fully pricing a rate hike in December. Elsewhere, the 40-year JGB auction drew its strongest demand since March 2025 (b/c 2.82x vs prev. 2.70x). USTs (+1 tick) hold steady, just shy of last week's trough of 108-17, seemingly unaffected by the higher energy prices.