The benchmark 10-year Treasury yield early Wednesday hit a perch at 3% for the first time since mid-June, as a cocktail of bearish factors, including a selloff in Japanese bonds, an increase in the U.S. government’s debt issuance, combined to push prices lower and yields higher.
On top of that, the Federal Reserve is set to release its latest policy update later in the afternoon.
The Japanese 10-year note TMBMKJP-10Y, +163.97%[1] surged to 0.126% on Wednesday from 0.044% late Tuesday in New York, marking the biggest yield jump in 2 years, a day after the biggest yield drop in the same period. Bond prices and yields move inversely.
The moves in so-called JGBs, bonds traders name for Japanese debt, may have been exacerbated by the unwind of bearish JGB bets, according to Bloomberg[2].
“Most of the selling took place in the long-end of JGBs (10yr up 6.3bps) on reports of a large margin call in JGB futures,” wrote Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities in a Wednesday research note.
That selloff in Japanese paper comes a day after Bank of Japan Gov. Haruhiko Kuroda vowed to maintain longstanding dovish strategies, albeit with tweaks, including incorporating forward guidance for the first time, with an emphasis that it intends to maintain rates at ultralow levels for an “extended period of time.” The BOJ also said in its yield-curve policy that it would allow for a rise to a range as wide as 0.2%, compared with a range between minus-0.1% and 0.1%, in a nod to criticism that the bank’s efforts to maintain superlow levels were taxing the central bank and weren’t sustainable. That new policy move may have been put to the test.
“I do think [the selling in bonds] has to do with what’s going on in Japan,” said Donald Ellenberger, senior portfolio manager at Federated Investors.
On Tuesday, the BOJ announcement stoked some buying in the global bond market on the day, as some investors had anticipated that the BOJ might offer some signs that it would roll back some elements of its easy-money posture.
In the U.S., the 10-year U.S. government bond yield TMUBMUSD10Y, +1.23%[3] jumped 3.4 basis points to 2.998%. The benchmark briefly touched a level above 3% in early morning action for the first time since June 13. Meanwhile, the two-year note yield TMUBMUSD02Y, -0.15%[4] the most sensitive to monetary policy moves, inched...