Paying the 2Y5Y15Y in JPY

While the belly of the JPY OIS swap curve is getting very expensive, it’s the other way around for 15Y to 30Y tenors. We believe that paying the 5Y and receiving both the 2Y & 15Y swaps in a 2Y5Y15Y fly is an attractive strategy, given the limited downside of the 2Y-5Y and our bullish bias on long term rates in general. The fly currently trades around -5 0 bp and should reconverge towards -35 / -37bps. Our stop-loss is set at -6 0 bp and our trading horizon will be 3 months. Paying the 2Y5Y10Y is a less risky alternative to this trade and should be considered as well.