Treasury yields rise as Japan’s 10-year rate reaches highest in roughly a decade

Posted by By News Room 3 Min Read

Treasury yields were slightly higher Monday morning after Bank of Japan Gov. Kazuo Ueda hinted at a possible end to negative interest-rate policy.

What’s happening

  • The yield on the 2-year Treasury
    BX:TMUBMUSD02Y
    rose less than 1 basis point to 4.991% from 4.982% on Friday. Yields move in the opposite direction to prices.

  • The yield on the 10-year Treasury
    BX:TMUBMUSD10Y
    rose 2.9 basis points to 4.286% from 4.257% on Friday.

  • The yield on the 30-year Treasury
    BX:TMUBMUSD30Y
    climbed 4 basis points to 4.370% from 4.330% on Friday.

What’s driving markets

Government bond yields mostly advanced on Monday after the Bank of Japan suggested it may soon end its negative interest-rate stance.

Ten-year JGB yields
BX:TMBMKJP-10Y
rose above 0.7% to their highest since 2013-2014, nudging up equivalent U.S. and European yields, after Bank of Japan Governor Kazuo Ueda told the Yomiuri newspaper over the weekend that by the end of 2023, the central bank should have an idea about whether its decade of easy monetary policy can come to an end.

“Once we’re convinced Japan will see sustained rises in inflation accompanied by wage growth, there are various options we can take,” Ueda said in an interview. “If we judge that Japan can achieve its inflation target even after ending negative rates, we’ll do so.”

Investors are also contemplating the prospects for U.S. monetary policy ahead of August’s consumer price index due Wednesday and a retail sales report for the same month on Thursday, which may influence the thinking of Federal Reserve policy makers ahead of their Sept. 19-20 meeting.

Markets are pricing in a 93% probability that the Fed will leave interest rates unchanged at a range of 5.25%-5.50% next week, according to the CME FedWatch Tool. The chance of a 25-basis-point rate hike to a range of 5.5%-5.75% at the subsequent meeting in November is priced at 38.5%.

What analysts are saying

“If last week was a bit light on important data, you can’t say the same about this week’s high-impact extravaganza that will occur in a Fed blackout period as next week’s FOMC lurks in the wings,” said strategist Jim Reid and others at Deutsche Bank.

“U.S. CPI (Wednesday) will be the obvious standout but U.S. PPI and retail sales (Thursday) are nearly as important given how some of the PPI subcomponents feed into the Fed’s preferred core PCE, and for retail sales, we’ll see how much momentum has been lost after a phenomenally strong July print,” Reid added.

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