Syz the moment

While the anticipation has been building for the Bank of Japan (BoJ) to exit its negative rate monetary policy in April 2024, the market seems to be taking a different turn. Today, the 2-year Japanese bond yield closed in negative territory. The BoJ has signaled its readiness to end the negative interest rate policy, but it's contingent on economic data and the outcomes of the March wage talks. Japan's path to normalization will be unique, as its economy still requires some level of monetary easing. The BoJ's terminal rate is projected to gradually reach around 0.5% over three to four years, potentially beginning with one or two rate hikes in the first year. However, the timeline for the BoJ to abandon its negative interest rate policy is now being seen as possibly extending further into 2024. Governor Kazuo Ueda's cautious statements, combined with unforeseen challenges like the recent earthquake, have led many economists to reconsider their forecasts, shifting expectations from January to potentially April or later. Stay tuned for more updates on this evolving situation. The Japanese monetary policy landscape is certainly one to watch closely in the coming months. Source: Bloomberg.

Source: Win Smart, SG, Bloomberg

Today, the US Treasury market faces a crucial test. Since its low in early December 2023, the spread between the 5-year and 30-year US Treasury yields has surged by 20bps, now touching the highs seen in June 2023. This significant shift sets the stage for today's key event: a $21 billion auction of 30-year US Treasury bonds. 🔍 Notably, the absence of 30-year bond maturities this month suggests that demand will likely stem from investors looking to lengthen their portfolio's duration. This development comes at a time when concerns were already mounting about the long end of the US Treasury yield curve, driven by factors such as negative US term premiums, a heavy supply forecast for Q1, and a resilient US economy that had witnessed a strong rally at the end of 2023. 🏦 This evening's auction is more than just a routine procedure; it's a litmus test for the supply-demand dynamics in the Treasury market. The results will be telling, offering vital insights into market sentiment and future directions, particularly regarding long-term government debt. Keep an eye out for our analysis on the outcome and implications of this pivotal financial event. #Finance #USTreasury #EconomicIndicators"

Saddled with the kind of bloated deficits that were once unthinkable, these countries — along with Japan — will sell a net $2.1 trillion of new bonds to finance their 2024 spending plans, a 7% increase from last year, according to estimates from Bloomberg Intelligence.

Source: Althea Spinozzi, Saxo, Bloomberg

Today's successful auction of the UK 4.75% 2043 bonds, raising GBP 2.25 billion at a yield of 4.391%, represents a significant rise from the 1.36% yield in the previous auction in October 2021. 📈 Highlighting investor confidence, the auction achieved a strong bid-to-cover ratio of 3.6. Notably, the 20-year UK Gilt has climbed nearly 40bps from its late 2023 low. 🔍 With core inflation trends showing signs of stabilization, market participants are keenly awaiting signals from upcoming wage and inflation data. We are observing keen interest in how the yield curve will react, particularly with the anticipated new 30Y gilt syndication on the horizon. More steepening could be on the cards. 💷 Considering the estimated £76 billion gilt supply for Q1 2024, a key question emerges: Can today's robust auction mitigate the recent selloff, primarily driven by substantial global duration issuance and reassessment of aggressive rate cut expectations? Source: Bloomberg

Source: BlackRock, Ayesha Tariq, CFA

Source: Steno Research, Bloomberg, Macrobond