Markets Ponder The Unthinkable After BoJ Shock
"Symbolically, this is an important step," SocGen's Kit Juckes wrote Tuesday.
He was referring to the Bank of Japan's surprise policy shift.
Yield-curve control tweaks aren't the stuff general interest headlines are made of, but make no mistake: The bank's decision to allow 10-year government bond yields to rise to 0.5%, double the previous ceiling, was one of Tuesday's bigger stories for serious market participants. (Admittedly, the definition of "serious" in the context of traders, pundits a
Back in the early 1980s I was one of the two largest offshore traders of Japanese government bonds and interest rate swaps. (I recall trading the JGB numbers 59 and 61.)
One evening I called into our Tokyo branch to get an update on the markets. I asked Hida-san what was going on. His succinct reply was “Tempest in teapot.”
With all due respect to commentators smarter than me, I’m feeling the same about this = a tempest in a teapot.
But as our Dear Leader noted over the weekend, this was scheduled to be a slow news week so this tweak gives us something to get all excited about for a day or two.
But the timing by the BOJ was well chosen to get maximum impact, eh?
They are clever, though nothing will ever top the actions taken by SAMA when specs built up huge short positions in anticipation of a devaluation of the Saudi Rial. So SAMA announced first announced an upward revaluation of the peg. (I think it may have been on a weekend, just to maximize the impact.) Once the specs were chased out, they devalued the currency a few days later. Brilliant!
So many happy (?) memories of calling on SAMA back in those days – being shown into a conference room to a couple of guys in thobes who would not give you business cards and then proceeded to beat the daylights out of you about the interest rate on their call account. In a country where interest was not legal. Irony was dead even then.
You don’t have to like people to take their money
Way out of my depth, but . . .
Higher JGB yield and higher JPY should reduce the attractiveness of the carry trade and thus pressure US yields higher, right?
I’m not able to estimate the magnitude of any such effect, but my impression has always been that the JPY-USD carry trade is very, very large?
Still trying to figure out why the US yield curve steepened today. I would have expected this news to flatten the yield curve. What am I missing?
By the way, I get that worlwide yields should have risen. Just not sure why it would be on the long end? I would think the withdrawal of monetary stimulus, by Japan, even if marginal should not have caused long yields to rise more than the front end.
Interesting question. I wonder if it is as simple as that the BOJ raised the cap on JGB 10Y so the most affected UST maturity was the corresponding one?