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Two risk scenarios for 10-year JGB yield
The 10-year JGB yield treads water with an upward bias in May. The 10-year UST yield continues to trade with an upward bias amid speculation that Fed rate cuts will start later than expected, and the yen continues to weaken. In the JGB market, there is lingering speculation that the BoJ will eventually be forced to reduce its bond purchases and raise rates to defend the Japanese currency. Persistent expectations of higher bond yields discourage active dip-buying even though prices seem attractive, leaving the 10-year JGB yield prone to rise and reluctant to decline. Meanwhile, the 10-year yield falls in response to buybacks if official intervention halts the yen’s decline. The 30-year JGB yield continues to trade at a level that keeps the 10s30s JGB spread at around 107bp.
