Bank of Japan’s pivotal yield rips across global stocks and bonds: markets warp

(Bloomberg) — Treasury yields rose and US stock futures swung in choppy trade after a surprise surprise move from the Bank of Japan sent the yen higher and raised expectations that it would join peers elsewhere in raising interest rates.

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Stock futures on the S&P 500 and Nasdaq were slightly lower after an early drop, as investors’ attention turned to this week’s housing and jobs data that could confirm the US economy is losing steam, potentially allowing the Federal Reserve a breather in its campaign to raise interest rates. . European stocks also erased most of the early decline amid gains in banking stocks.

Meanwhile, bond yields remained elevated, with the 10-year Treasury yield up 8 basis points and bonds from Australia to Germany also sold off. Analysts believe more losses await them as Japanese investors, the major players in US and European debt, now have more incentive to bring money home.

Many economists now expect the Bank of Japan to raise interest rates next year, joining the Federal Reserve, European Central Bank and others after a decade of extraordinary stimulus.

“The Bank of Japan’s more hawkish policy would remove one of the last global pillars that helped keep borrowing costs at lower levels more broadly,” Deutsche Bank analysts told clients, noting that the BoJ’s move came as markets were “already swinging.” From the European Central Bank and the Federal Reserve Bank. last week.

The yen rose more than 3% against the dollar to its highest level since August, while Japan’s 10-year yield rose by the most since 2003.

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So far, the Bank of Japan has been aloof from central banks, most of which have quickly tightened policy. Japan’s monetary authority modified its yield curve control program to allow 10-year borrowing costs to rise to around 0.5%, against the previous upper limit of 0.25%, bucking expectations for no change at its policy meeting.

Read more: BOJ Blindsides Traders to Echo Christmas Day Shock of 1989

The yen’s rally hit the dollar, which fell against a basket of currencies, while the yen also showed notable gains against currencies such as the euro and the Australian dollar.

Adam Cole, strategist at RBC Bank, said the moves had been amplified by positioning, with most investors still buying dollars against the yen ahead of the BoJ meeting, meaning that “covering these yen shorts could lead to a rally in the yen.”

In commodities markets, a weaker dollar gave gold prices a boost, while WTI futures rose above $75 a barrel.

Main events this week:

  • Residences begin in the US, Tuesday

  • Crude Oil Inventory Report from the Energy Information Administration, Wednesday

  • US Existing Home Sales, US Conference Board Consumer Confidence, Wed

  • US GDP, Initial Jobless Claims, Conf. The board’s leading indicator, Thursday

  • US Consumer Income, New Home Sales, US Durable Goods, PCE Contraction, University of Michigan Consumer Confidence, Friday

Some of the major movements in the markets:

Stores

  • S&P 500 futures were down 0.3% as of 8:25 a.m. New York time.

  • The Nasdaq 100 fell 0.6%.

  • Futures contracts on the Dow Jones Industrial Average changed little

  • The Stoxx Europe 600 fell 0.2%.

  • The MSCI World Index was little changed

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currencies

  • The Bloomberg Spot Dollar Index fell 0.5%.

  • The euro was little changed at $1.0599

  • The British pound fell 0.2 percent to $1.2120

  • The Japanese yen rose 3.1% to 132.72 per dollar

Digital currencies

  • Bitcoin rose 1.4% to $16,817.81

  • Ether rose 3.2 percent to $1,212.98

bonds

  • The yield on the 10-year Treasury note advanced eight basis points to 3.67%.

  • The German 10-year bund yield advanced eight basis points to 2.29%.

  • The UK 10-year yield advanced eight basis points to 3.58%.

goods

  • West Texas Intermediate crude rose 1.1 percent to $76.03 a barrel

  • Gold futures rose 0.7% to $1,809.50 an ounce

This story was produced with help from Bloomberg Automation.

— With assistance from Jason Scott and Tasia Sipahutar.

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