The Bank of Japan shock also has repercussions on BTPs and, in general, on government bond rates in the euro area.
It should be noted that the level of yields on 10-year BTPs remains higher than the rates on Greek sovereign bonds. The overcoming occurred with the anxiety over BTPs unleashed by the ECB last week.
Christine Lagarde’s European Central Bank confirmed its determination to defeat the flare of inflation in the euro area, raising rates by 50 basis points, promising the very likely arrival of further tightening of 50 basis points in the future and also launching QT Quantitative Tightening.
Today, the sting already suffered by BTPs (which was reflected in the increase in the BTP-Bund spread) also came from Japan.
The rates of 10-year BTPs, already reduced by the shock signed by the ECB, rose, according to Bloomberg surveys, up to +8 basis points to 4.45%, while two-year yields jumped by 5 basis points to 3.173 %.
Spanish sovereign bond rates also advanced 8 basis points to 3.37%, while Greek 10-year government bond yields rallied 6 basis points to 4.403%.
At 1.11 pm Italian time, 10-year BTP rates reduced gains, settling at 4.41%, compared with 10-year Bund rates at 2.26%, a factor that led the BTP-Bund spread to drop substantially slight around 216 basis points.
With what was its last act of 2022, the Bank of Japan led by Haruhiko Kuroda announced that it had left Japan’s borrowing cost unchanged at -0.1% but that it had also made a change to the YCC (Yield Curve Control), i.e. the yield curve control tool.
In fact, the central bank of Japan has increased the range of fluctuations in Japanese government bond rates, from the previous range of between -0.25% and 0.25% to the new band, between -0.5% and +0.5%.
This means that the central bank will allow long-term rates to rise from 25 basis points (the previous limit set under the YCC policy) to 50 basis points, the limit announced today.
Thus the analysts of Mps Capital Services:
“The repricing phase on the post-central bank government bond sector continued yesterday, with the upward movement in yields which for the moment cannot find a break. This morning, the surprise decision by the BoJ is amplifying the move, with the long-term leg appearing to be the most penalized. All of this is translating into a steepening of the curves both in the Eurozone and in the USA”-
With particular regard to the euro area and to BTPs, “in the meantime, declarations continue from the ECB front confirming the restrictive attitude that emerged in the last meeting. The President of the Bundesbank, Nagel, underlined that the road to reaching the inflation target is still long and that further increases of 50bps will be necessary in the future”, while “on the macro front, good news has come from German producer prices November which fell for the second consecutive month (-3.9% m/m), with the trend figure falling to the lowest levels since last February (28.2% y/y). However, electricity prices have risen again in the last month, which could curb the ongoing slowdown over the next month”.