6 Apr 2015
Yields in JGBs points southwards - BAML
FXStreet (Edinburgh) - According to the research team at BAML, the negative trend will persist in JGBs.
Key Quotes
“Based on the recent yield rise and heightened volatility, concern has not been completely dispelled, but as long as the BoJ continues its large-scale JGB purchases, the downward trend in yields will probably remain in place”.
“We expect 10yr yield to drop below 0.2% and head toward 0.1% in 2015 with global yields lowering”.
“As mentioned above, trading by the city banks in the secondary market has dropped dramatically since the BoJ expanded QQE, and with JGB market liquidity declining, there is a growing risk of volatility increasing”.
“Under its current monetary policy, the BoJ is purchasing about 90% of all new JGB issuance”.
“On a net basis, the BoJ's long-term JGB holdings should grow at an annual pace of ¥80tn, but because the net supply of long-term JGBs is only about ¥35tn annually, investors other than the BoJ must reduce JGB holdings by about ¥45tn”.
“Although we expect selling by the pension funds for the time being, we believe there is a risk at some point the BoJ will not be able to purchase JGBs according to plan because of a lack of sellers”.
Key Quotes
“Based on the recent yield rise and heightened volatility, concern has not been completely dispelled, but as long as the BoJ continues its large-scale JGB purchases, the downward trend in yields will probably remain in place”.
“We expect 10yr yield to drop below 0.2% and head toward 0.1% in 2015 with global yields lowering”.
“As mentioned above, trading by the city banks in the secondary market has dropped dramatically since the BoJ expanded QQE, and with JGB market liquidity declining, there is a growing risk of volatility increasing”.
“Under its current monetary policy, the BoJ is purchasing about 90% of all new JGB issuance”.
“On a net basis, the BoJ's long-term JGB holdings should grow at an annual pace of ¥80tn, but because the net supply of long-term JGBs is only about ¥35tn annually, investors other than the BoJ must reduce JGB holdings by about ¥45tn”.
“Although we expect selling by the pension funds for the time being, we believe there is a risk at some point the BoJ will not be able to purchase JGBs according to plan because of a lack of sellers”.