Downward pressure on JGB yields from falling US yields exceeds upward pressure from YCC tweaks
JGB yield and yield curve scenario for November 13-17
The 10-year JGB yield continues to tread water this week while reacting to developments in the 10-year UST yield. If the latter takes on an upward bias in a reaction to its recent plunge, the 10-year Japanese yield moves higher along with it. However, a combination of BoJ purchases and buying by domestic investors who missed the dip limits the upside for yields. If US economic data point to an economic slowdown and a retreat of inflationary pressures, the 10-year UST yield resumes testing the downside, and the 10-year JGB yield falls in sympathy. However, lingering concerns about the possibility of a wind-down of NIRP cap the downside for yields. The 20-year JGB yield trades at levels that keep the 10s20s JGB spread at around 70bp.
Forecast range:
10-year JGB yield: 0.830%–0.880%
20-year JGB yield: 1.530%–1.580%