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JGB yield and yield curve scenarios for December and 2H FY24-FY27
The 10-year JGB yield trades around the 1.0% - 1.1% range with an eye on the outcome of the December 18-19 Monetary Policy Meeting. It takes out its FY24high of 1.1% if BoJ communications seem to be preparing the market for a December 19 rate hike or if news reports appear to offer definitive evidence of an upcoming rate hike. If the Bank does decide to raise the policy rate to 0.5%, a sense that the worst is over spurs buybacks and dip-buying demand and sends the10-year yield back down into the 1.0% - 1.1% range. Even if the Bank forgoes a rate hike, the downside for the 10-year yield is limited because Governor Kazuo Ueda hints at a rate hike at the January 23-24 meeting, saying at his press conference that "our confidence in achieving the outlook continues to improve." Concerns about protectionist trade policy (and a rekindling of inflation) after the Donald Trump administration takes over on January 20 also help curb further declines in the 10-year UST and JGB yields. If the usual schedule is followed, the Japanese government releases its initial budget proposal for FY25 and the Ministry of Finance presents its JGB issuance plans for FY25 sometime around December 20.If the MoF decides to reduce issuance in the 30- and 40-year sectors in FY25, the super-long sector undergoes a modest flattening as supply/demand concerns fade.
