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Free AccessGoldman Sachs: Heightened Market Speculation On Further BoJ Actions
Goldman Sachs note that “markets appear to be placing relatively high odds of at least another adjustment to, if not an outright exit from YCC – 10-Year swap rates are at 1%, and JGBs that the BoJ is not explicitly offering fixed-rate operations on are trading above the upper end of the BoJ’s tolerance band.”
- “The elevated pace of buying does not appear to be sustainable and will likely deplete private sector bond market inventories - implied repo rate of the CTD into JGB futures widened about 5.5%, though not quite to the ~7% level in the run-up to the BoJ meeting last June.”
- “More broadly, while we expect JGBs close to the current 10y (8- to 9-Year maturities) to continue to trade poorly going into the meeting, we note that short of a “full” YCC exit (or indication of such actions in the future), markets could reverse some of the run-up in yields shortly thereafter.”
- “In terms of impact of potential changes, tweaks, such as a further 25bp widening of the tolerance band, are unlikely to have large spillover effects to other G10 yields (much as was the case with the last adjustment). However, indications of a more substantive exit from easy monetary policy, to the extent it turbocharges yen appreciation, could result in an acceleration of Japanese investors’ unhedged foreign bond portfolios, thereby producing larger spillovers effects.”
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.