Japanese Government Bond (JGB) yields reached a decade high on Monday, driven by US Treasury yields and potential policy changes at the Bank of Japan (BOJ). The 10-year yield surged to 0.89%, while the five-year yield peaked at a May 2013 high of 0.395%. The two-year JGB yield followed suit, hitting a January 2014 high after a mixed-result auction reported a weak bid-to-cover ratio of 3.04, as noted by Shoki Omori from Mizuho Securities. Further, down the curve, the 20-year and 30-year JGB yields rose to 1.68% and 1.85% respectively.
This surge comes ahead of several significant policy meetings this week at the BOJ, the Bank of England, and the Federal Reserve, culminating with the U.S. non-farm payrolls report. Despite expectations of a hawkish message, the BOJ is predicted to maintain its Yield Curve Control (YCC) strategy, keeping the short-term rate target at -0.1% and long-term rates near 0% with a de-facto cap allowing for a rise to 1.0%.
Tokyo officials are considering modifications to their yield curve control policy on Tuesday to counterbalance upward pressure from U.S. rates. Meanwhile, the Federal Reserve is expected to hold rates on Wednesday, with a final rate hike potentially slated for December, though Fed funds futures currently assign only a 25% probability to this scenario.
The Bank of England is also anticipated to keep rates steady, although CMC Markets (LON:CMCX) UK's Michael Hewson predicts that one or two of its four policy hawks may shift their call to a hold. Swati Dhingra, the sole dove on the Monetary Policy Committee, might advocate for a rate cut, a move that Hewson warns could carry risks given the current persistent inflation.
Investors are also keenly awaiting several key data points this week. In Europe, Q3 German GDP and October's euro area CPI are both expected to show a deceleration in price gains. The U.S. non-farm payrolls report, due on Friday, is projected to drop to 172,000 from 336,000 in September. Other notable data releases in the U.S. include survey readings from the Institute for Supply Management for manufacturing and services sector activity during October. In China, Caixin's factory and services PMI will be released on Wednesday and Friday respectively.
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