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Analysts at ANZ Bank New Zealand Limited explained that after a Reuters report yesterday suggested that the Bank of Japan may modify its stimulus program at its 31 July meeting, JGB long yields jumped.

Key Quotes:

“The 10bp steepening in the Japanese yield curve is massive in the context of a market that rarely moves more than 1bp. Global bond markets bear steepened, with the contagion fear due to the fact that Japanese investors will face less incentive to hunt offshore for yield, particularly once hedging costs are taken into account.”

“The US 10-year Treasury yield is now at its highest in a month, and 30-year yields also rose 7bp overnight. Canada’s 10-year yield rose 6bp, and those of the UK, France and Germany lifted 4bp.”

“Market moves are likely being exacerbated by low liquidity due to the holiday period, but they reflect a broader fear that central banks are reducing their purchases while US bond supply is set to rise significantly.”

“Donald Trump has made no secret of his dislike of the Fed’s tightening, which has helped steepen the curve: the gap between 30-year and 2-year Treasury yields is at its widest in nearly a month.”

“New Zealand markets will not be immune from the moves.”