### BoJ has now been applying negative rates...>

JGBS: ### BoJ has now been applying negative rates on yen deposits made by

overseas central banks at 0.05% below the S-T rate. The BoJ held around Y16tln

in deposits from global central banks and international organisations at the end

of June. However, not all of these have negative deposit rates applied to them,

instead this is only relevant on deposits over an undisclosed threshold amount. 

- The decision to apply negative deposit rates has coincided with the rise in

T-Bill yields (3-Month up 28bp since Jan), implying that confronted with

negative interest rates foreign central banks chose to deposit with the BoJ

instead. Now that T-Bills and BoJ deposits face negative interest rates it could

impact yen cross currency basis swaps, which have declined approximately

2.5bp-4bp across the curve, the 6-Month dropping a further 10.75bp into negative

territory indicating increased USD demand.

>> POV: T-Bills could well come back into fashion with higher yields in T-Bills,

and as negative deposit rate easing supply/demand conditions (those searching

for yield forced into longer maturities) and large BoJ purchases. The stalling

debt ceiling negotiations in the US also make US T-Bills less attractive.