JGB's Mixed on Firm Oil Prices, Dovish FOMC
The Japanese government debt instrument traded mixed on Thursday after reading dovish FOMC meeting minutes and firm crude oil prices. The benchmark 10-year bonds yield, which is inversely proportional to bond price rose 1.82 pct to -0.054 pct and 3-year bonds yield dipped 0.89 pct to -0.227 pct 6:00 GMT.
The Japanese bonds have been closely following developments in oil markets because of their impact on inflation expectations. Oil futures bounced off 1-month lows as Kuwait's OPEC governor and two sources said all signs suggested a meeting of oil-producing countries on April 17 would deliver an agreement to freeze output. Also, Oil prices rallied after industry data showed that U.S. stockpiles fell below the 9 million barrel per day mark last week for the first time since October 2014.
The International benchmark Brent futures rose 0.90 pct to $40.20 and West Texas Intermediate (WTI) jumped 1.11 pct to $38.17 by 6:45 GMT.
The Fed in its March FOMC meeting minutes indicated that participants agreed that their ongoing assessments of the data and the implications for the outlook, rather than calendar dates, would determine the timing and pace of future adjustments to the stance of monetary policy. Although a range of views were expressed about the incoming information would be sufficient to make an adjustment in April, a number of participants judged that headwinds restraining growth (an holding down the neutral rate of interest) were likely to only subside slowly.
Accordingly, factoring risks to the economic outlook, several participants expressed the view that raising the target range for Fed Funds as soon as April would signal a sense of urgency that they did not think was appropriate. This very much supports the view that rates are likely to move higher over the course of 2016 (most likely beginning in June), though appears to increase the likelihood that the April meeting would see the current “wait and see” approach to monetary policy continue.
The Japanese Government Bond (JGB) prices are marginally mixed, with super-long JGBs firmer. The results of today's monthly JPY400bn liquidity enhancement auction for off-the-run JGBs maturing in 15-39 years were mixed. The accepted yield spreads came in at -1.9 bps to -1.1 bps, vs -0.5 bps for the 20s and -1.5 bps for the 30s at the morning close, while the bid-to-cover ratio declined from 3.65x last month to 2.63x, the lowest level since Aug 2015 (1.95x). Lead March JGB futures briefly fell as low as 151.32 (-0.17) two minutes before the MoF published the results at 03:45GMT.
But JGB futures immediately recovered most of their earlier losses within several minutes, temporarily rising to as high as 151.49 (flat). They are now down 0.05 at 151.44, off their intraday high of 151.57. According to JGB traders, cash activity is limited to transactions among dealers. In mid-afternoon trading, the USD/JPY hit a 17-month low of 108.85. But the impact on super-long JGBs is limited.
Moreover, the BoJ's adoption of negative rates in January has driven JGB yields below zero, while also increasing its market volatility.
We expect an expansion of stimulus, and if the market happens to rule out any additional boost in stimulus, that would create an opportunity to go long and we also foresee that the 10-year note will yield about -0.15 pct at year-end.
The material has been provided by InstaForex Company - www.instaforex.com
