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BoJ YCC Modification Weighed on Global FI Markets Overnight

US TSYS
Global FI markets gapped lower overnight after the BoJ deployed a surprise widening of its permitted 10-Year trading band (to -/+0.50% vs. the previous -/+0.25%) at the end of its latest monetary policy decision: modifying the YCC parameters apparently implemented to improve market functioning (the BoJ now holds over 50% of outstanding JGBs for the first time).
  • Most of the (average) session volume occurred in the first few hours or Asia trade, while Tsys moved sideways from early lows through the entire session. Of note, 2s10s bear steepened back to mid-Nov levels tapping -56.923 inverted high overnight, -58.199 on the close (+9.328).
  • Muted reaction to US Data, a modest beat in November housing starts, but that is a huge miss in building permits - by 140,000 (1.48mn expected, 1.34mn actual). The 180k M/M drop vs October is one of the largest monthly falls ever for permits - exceeded only a handful of times, in 2020, 2015, and in 2008.
  • Fed funds implied hike for Feb'23 at 34.0bp, Mar'23 cumulative 49.0bp (+2.5) to 4.828%, May'23 55.6bp (+4.5) to 4.894%, terminal at 4.88% in Jun'23.
  • On Friday: Deadline for Congress to reach an agreement on a year-long omnibus spending bill to avoid a shutdown of the federal government hits Friday at 23:59:59.
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