Treasury yields moved lower Tuesday morning after the Bank of Japan maintained its negative interest-rate policy and gave little indication of a potential shift in its ultra-loose stance soon.
What’s happening
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The yield on the 2-year Treasury
BX:TMUBMUSD02Y
slipped less than 1 basis point to 4.450% from 4.455% on Monday. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
fell 4 basis points to 3.915% from 3.955% on Monday. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
also dipped 4 basis points to 4.028% from 4.068% on Monday. - Ten- and 30-year rates were both not far from some of their lowest levels since July.
What’s driving markets
Traders were parsing a trio of competing bond-market drivers on Tuesday.
Helping to suppress yields was the continued hope that easing U.S. inflation means the Federal Reserve can start cutting interest rates next year, though a number of officials have tried recently to calm the market’s enthusiasm for this narrative.
Also weighing on yields was Tuesday’s decision by the Bank of Japan to continue keeping interest rates at minus 0.1%, with Governor Kazuo Ueda offering little evidence during his press conference that a move to exit the central bank’s ultra-loose stance is coming soon.
The benchmark 10-year Japanese government bond yield
BX:TMBMKJP-10Y
fell in response, and the yen weakened relative to the U.S. dollar.
See also: The yen got slammed after Bank of Japan stood pat. Here’s what’s next.
Potentially counteracting the downward move in global bond yields are concerns that tensions in the Middle East may rebuild inflationary pressures. Shipping costs may rise, with maritime transport groups saying they have halted transits through the Red Sea because of attacks on boats by Yemen’s Houthi militants. Worries about oil supplies from the region may also force up energy prices.
In U.S. economic data on Tuesday, construction of new homes rose 14.8% last month to the highest level since May as builders scaled up new projects, and building permits, a sign of future construction, fell 2.5% to a 1.46 million rate.
What strategists are saying
“Treasury yields moved in choppy trading overnight within narrow ranges, especially at the long end of the curve, as the BoJ left its monetary policy unchanged and gave confusing hints about how much forward guidance markets should expect once it finally moves away from its ultra-dovish policy,” said Will Compernolle, a macro strategist for FHN Financial in New York. “Previously, BoJ Governor Ueda had said that policy surprises are difficult to avoid. Today, he said that ‘there isn’t much likelihood of us suddenly announcing that we’ll raise rates a month in advance.’”
