Focus on US Treasury rates and also on the dollar, in the day following the Bank of Japan trauma which yesterday, with its surprise announcement, caused a surge in rates in the main global government bond markets.
Today, rates on 10-year US Treasuries fell as much as -4 basis points to 3.643%, while yields on two-year Treasuries dropped by more than -5 basis points to 4.211%.
On the Italian government bond market, we note the decline in the BTP-Bund spread, which drops by more than 2%, remaining around 210 basis points. The rates on 10-year BTPs are 4.38%.
Thus the analysts of Mps Capital Services comment on the Bank of Japan effect on the fixed income market, in their note today:
“Yesterday, we recorded a new decisive and unanimous rise in both nominal and real yields, in the wake of the BoJ’s move. On the Japanese front, the 10-year yield moved towards the upper end of the control range (0.50%) but at the same time its counterpart on the swap market is slightly below 0.80%, indicating expectations for further future increases. This is normal, also considering that Takatoshi Ito, one of the contenders to replace Governor Kuroda next April, said that the BoJ’s move could be the first step towards an exit from ultra-easy monetary policy. And the OIS market indeed prices 25bp upside by June 2023”.
The note from Mps Capital Services also highlighted that, “in the meantime, the data in the United States confirm the slow but constant deterioration of the real estate market. New building permits have dropped by 11% m/m which historically anticipates new constructions by about 2 months”.
In addition to Treasuries, the dollar recovered, slipping more than 3% against the yen yesterday.
The greenback actually rallied rather modestly against the Japanese currency, climbing 0.26% to JPY 132.08, and is under pressure from the single currency.
The euro-dollar exchange rate advanced 0.10% to $1.0632.
The BoJ announced yesterday its intention to change the fluctuation range on which it bases its yield curve control (YCC) policy.
To be precise, the Bank of Japan will widen the range of fluctuations in 10-year Japanese government bond rates, from the current range between -0.25% and 0.25%, to the new band between – 0.5% and 0.5%.