Sectors: Bonds
Hi guys, Could you please try to summarise what and why Japan is doing / thinking about with their rates and bonds. It seems like for the last few years I’ve been seeing the same headlines, in that they are waiting to increase rates and cut bond buying. Can you throw some light on what they’re waiting for or what they are getting forced into. How much U.S. debt do they hold and if they do adjust, how much impact will it have? Last year there was a big reaction; however, if everyone is expecting it, would it most be priced in?
Regards, Simon
Hello James and Team,
The Fed delivered a mixed message overnight, after holding interest rate steady as expected. They delivered a “warning” like hawkish message around inflation while still targeting two rate cuts in the 2H of 2025 – a bit of a contradiction!
US Treasuries fell as an earlier surge in oil prices fanned concern about inflation, with tensions between Israel and Iran escalating over the weekend.
The local 10s dipped back towards 4% last week, but they’re at the same price they were 18 months ago, with a lot of news having crossed our screens in that time.
The US 10s drifted lower last week but considering the dovish data and conflict in the Middle East, similar to equities, it was a relatively lacklustre move.
Following the softer-than-expected CPI overnight traders increased bets that on Fed rate cuts through 2025/6 with two easing’s expected in Christmas and one more in 2026.
Strong demand from yield-hungry investors is driving a surge in developing-world bond sales as borrowers race to secure financing ahead of any further uncertainty across global markets.
Australian 10-year bonds have also treaded water for around three years and they currently sit in the middle of the relatively large 3-5% trading range.
The move by the Japanese finance minister helped push the US 30s back under 5% last week as markets hoped less competition for capital would rein in the recent uplift in US yields.
