Free Trial

VIEW: Late Friday saw Goldman Sachs note.......>

JGBS
JGBS: VIEW: Late Friday saw Goldman Sachs note that "as in other regions, recent
improvements in economic data and a rebound in risk assets have taken JGB yields
higher. Given our economists' expectation for a strong sequential bounce over
the next quarter, we expect this move to continue, particularly at the long end.
This should translate to a steeper 10s30s JGB yield curve, given the BOJ's YCC
policy of targeting 10y yields - though we are admittedly some distance away
from the BOJ's deviation band, the 10y yield has tended to be stickier than
longer maturities. Our YE20 forecasts for 10y and 30y JGB yields are 0.1% and
0.75% respectively, implying roughly 15bp of 10s30s steepening from current
levels. Domestic supply dynamics and BoJ purchasing patterns are supportive of
steepening, as is what we expect will be a diminished bid for JGBs. On the
latter point, a key reason for us to expect some erosion in long-end demand is a
steep decline in FX hedging costs, which increases the attractiveness of foreign
bonds - at the 30y point, we estimate a roughly 35bp yield pick-up in USTs and
20bp pick-up in OATs versus JGBs when using 3m rolling hedges. Therefore, we
recommend adding 10s30 JGB curve steepeners."
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

To read the full story

Close

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.