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We see little further downside for 10-year JGB yield
The 10-year JGB yield continues to trade with a downward bias this week but resists further declines. After the FOMC meeting on June 12, Chair Jerome Powell’s press conference rekindles speculation that the Fed may start cutting rates as early as September. The 10-year UST yield tests the downside with an eye on the key psychological threshold of 4.2%, putting downward pressure on its Japanese equivalent. If the BoJ decides at the June 14 Policy Board meeting to gradually and incrementally reduce its bond purchases, a sense that the worst is over prompts a further move lower for the 10-year JGB yield. However, persistent concerns about a potential weakening of the stock effect (due to significant reductions in BoJ bond purchases) and another rate hike by the end of 2024 cap the downside for yields. The 30-year JGB yield trades at a level that keeps the10s30s JGB spread at around 110bp.
