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JGBS: Barclays "exp. JGB yields to remain suppressed in the week ahead. Risk-on
flows have been subdued in the wake of the US-China summit & bond yields in
major mkts continue to trend downward. The rise in yields seen after the BoJ's
July MPM has reversed entirely in the short/medium-term sectors & retraced more
than halfway in the long/superlong-term sectors. Such moves reconfirm the rise
in UST-JGB beta for periods of declining yields as well. The swap curve also
declined sharply, led by the medium-term sector, on the back of a continuous
decline in JPY LIBOR. Looking ahead, the BoJ's tapering of JGB purchases & its
tolerance toward higher long-term yields in the context of relative stability in
USDJPY, which has been supported by US economic outperformance & technical
supports, should limit the pace of any decline in yields to some extent,
especially given the already low levels. In this environment, we expect JGB
yields to stay in a low range over the near term. However, if declines in UST
yields begin to translate into a lower USDJPY, the scope for a BoJ reaction may
become more limited, exerting stronger downward pressure on JGB yields. JGB mkts
should remain vulnerable to two-way volatility depending on overseas dynamics."
MNI London Bureau | +44 0203-865-3809 |
MNI London Bureau | +44 0203-865-3809 |

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