BOJ Yield Pivot Tears Across Global Equities, Bonds: Markets Wrap

(Bloomberg) – Government bond yields rose and global equities fell after the Bank of Japan mimicked its central bank peers with a hawkish move that pushed the yen to its highest level in more than four months and domestic bond yields by 20 basis points sent upstairs.

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The move rocked global markets, with European stocks opening nearly 1% lower and US stock futures tumbling after four days of losses in underlying indices. Asia’s main equity benchmark suffered its fourth straight decline.

In bond markets, 10-year government bond yields rose as much as 10 basis points for a second day before those gains tailed off, while bonds from Australia to Germany also sold off. Analysts expect more losses to come as Japanese investors, key players in US and European debt, now have greater incentive to bring money home.

The yen surged as high as 133.21 against the dollar, up more than 3% at one point, while Japan’s 10-year yield surged to its highest level since 2015.

“Tighter BoJ policy would remove one of the last global anchors that has helped keep borrowing costs low across the board,” Deutsche Bank analysts told clients, noting the BOJ’s move came as the Markets “already reeling” from the dovish stance of the ECB and Fed last week.

So far, the BOJ has been an outlier among central banks, most of which have been quick to tighten monetary policy. Japan’s monetary authority adjusted its yield curve control program to push 10-year borrowing costs to around 0.5% from the previous 0.25% cap, defying forecasts for no change at its policy meeting.

The yen’s rise impacted the dollar, which fell against a basket of currencies, while the yen also posted notable gains against currencies like the euro and Australian dollar.

RBC strategist Adam Cole said the moves were amplified by positioning as most investors are still long holding the dollar against the yen ahead of the BOJ meeting, meaning “covering those yen shorts is still holding the yen could drift higher”.

In commodities markets, a weaker dollar boosted gold prices, while West Texas Intermediate crude oil futures held steady just above $75 a barrel.

Important events this week:

  • US housing construction begins on Tuesday

  • EIA Crude Oil Inventory Report, Wednesday

  • US Existing Home Sales, US Conference Board Consumer Confidence, Wednesday

  • US GDP, Initial Jobless Claims, US Conf. Board leading index, Thursday

  • US Consumer Income, New Home Sales, US Durable Goods, PCE Deflator, University of Michigan Consumer Sentiment, Friday

Some of the key market movements as of 7:30am Tokyo time:

stocks

  • The Stoxx Europe 600 was down 0.9% at 8:38 am London time

  • S&P 500 futures fell 0.7%

  • Nasdaq 100 futures down 0.9%

  • Futures on the Dow Jones Industrial Average fell 0.5%

  • The MSCI Asia Pacific Index fell 0.3%

  • The MSCI Emerging Markets Index fell 1.1%

currencies

  • The Bloomberg Dollar Spot Index fell 0.6%

  • The euro rose 0.1% to $1.0619

  • The Japanese yen rose 3.3% to 132.43 per dollar

  • The offshore yuan rose 0.2% to 6.9694 per dollar

  • The British pound was little changed at $1.2154

cryptocurrencies

  • Bitcoin surged 1.3% to $16,795.87

  • Ether was up 2.7% to $1,207.65

Bind

  • The 10-year government bond yield rose eight basis points to 3.66%

  • The 10-year German government bond yield rose 10 basis points to 2.30%

  • The 10-year UK government bond yield rose 14 basis points to 3.64%

raw materials

  • Brent crude fell 0.9% to $79.11 a barrel

  • Spot gold rose 0.6% to $1,797.96 an ounce

This story was created with the support of Bloomberg Automation.

–Assisted by Jason Scott.

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