Short-Covering Japanese Bond Traders Bring Zero Yields Back Into Focus
- Futures rally could continue for months, according to MS MUFG
- Inversion of 2-5 JGB yield curve possible, SMBC Nikko says
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Rising demand for haven assets is threatening to push Japan’s benchmark yield below zero percent and quash the likelihood of further central bank policy tweaks in the new year for fear of stoking the yen, according to local strategists.
A rally in government bond futures, exacerbated by a scarcity of so-called cheapest-to-deliver JGBs, pushed the yield on 10-year notes to 0.035 percent this week, the lowest since July. Yields will keep falling until positions are cleared, complicating any Bank of Japan move toward policy normalization, said Naomi Muguruma, a senior market economist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo.