Bank of Japan announces cut to bond-buying
Prices for long-dated Treasurys fell, pushing yields higher, on Tuesday after the Bank of Japan reduced its bond purchases amid speculation that the central bank would signal an end to years of ultra-accommodative monetary policy.
What are Treasurys doing?
The yield for the 10-year benchmark note rose 6.2 basis points to 2.542%, its highest since March 14. The 30-year bond yield jumped 7.1 basis points to 2.883%, its biggest single-day jump since Dec. 19. The two-year note yieldwas up 0.8 basis points to 1.968%.
What's driving markets?
The Bank of Japan cut purchases for its long-dated debt overnight, drawing speculation that the central bank would ease away from loose monetary policy. Analysts say low interest rates in Europe and Japan have kept a lid on long-dated yields for U.S. government paper, which have struggled to perk up even after three rate hikes by the Federal Reserve in 2017.
But some tamped down on the speculation that the move would mark a sea change for the BOJ as none of the members of its policy-making panel have advocated for any reductions to monetary stimulus. The selloff, however, highlighted the sensitivity of investors to subtle changes to major central banks' decision-making.
A few market participants said a broader shift in investor sentiment could be afoot after the 10-year yield broke decisively above 2.50%. A tax bill and high commodity prices have contributed to climbing inflation expectations, percolating into lower prices and higher yields for long-dated debt.
See: Relax, the Bank of Japan isn't tapering--yet! (http://www.marketwatch.com/story/relax-the-bank-of-japan-isnt-taperingyet-2018-01-09)
What did market participants say?
"We're not convinced [the BOJ's move] is indicative of a policy shift, as much as the fact that the reduction focused attention on the eventual need of the BOJ to cut purchases," wrote Aaron Kohli, a fixed-income strategist at BMO Capital Markets.
"By no means is this a major selloff, but it certainly bears watching, this is more of a back-up than people would have expected from the reports we received overnight," said Marvin Loh, senior fixed-income strategist for BNY Mellon.
What else is on investors' radar?
Minneapolis Fed President Neel Kashkari reaffirmed his view that interest rates should stay low until wages and inflation picked up. He is no longer a voting member of the Fed's interest-rate-setting body this year.
Read: Banter between Kashkari and corporate executive shows dilemma Fed is facing (http://www.marketwatch.com/story/banter-between-kashkari-and-corporate-executive-shows-dilemma-fed-is-facing-2018-01-09)
The Treasury Department sold $24 billion of three-year notes to solid appetite, but the auction struggled to stall the selloff in government paper.
What assets are on the move?
The yield for the 10-year Japanese government bond rose 1.1 basis points to 0.07%, according to Tradeweb data. Under the BOJ's yield-curve control program, the central bank pegs the 10-year yield to zero.
European bond yields also climbed after trading desks freed up inventory to snap up fresh supply from debt auctions. The German 10-year bond yield rose 3.3 basis points to 0.460%, while the French 10-year bond yield added 3 basis points to 0.813%.
(END) Dow Jones Newswires
January 09, 2018 16:15 ET (21:15 GMT)