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

(Bloomberg) — Treasury yields rose and global stocks fell after the Bank of Japan emulated its central bank counterparts with a hawkish move that lifted the yen to its highest in more than four months and sent domestic bond yields 20 basis points higher.

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The move jolted global markets, with European stocks opening nearly 1% lower and US stock futures falling after four days of losses in the main indexes. Asia’s main stock index suffered a fourth straight decline.

In bond markets, the 10-year Treasury yield rose 10 basis points for a second day, before paring those gains, while 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.

The yen rose to as much as 133.21 per dollar, up more than 3% at one point, while Japan’s 10-year yield rose to the highest level since 2015.

“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.

So far, the Bank of Japan has been aloof from central banks, most of which have rapidly tightened policy. Japan’s monetary authority adjusted 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.

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.

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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 were flat 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 major moves in the markets as of 7:30 AM Tokyo time:

Stores

• The Stoxx Europe 600 is down 0.9% as of 8:38 a.m. London time.

• S&P 500 futures fell 0.7%

• The Nasdaq 100 fell 0.9%.

• Futures on the Dow Jones Industrial Average fell 0.5%.

• The MSCI Asia Pacific Index fell 0.3%.

• The MSCI Emerging Markets Index fell 1.1%.

currencies

• The Bloomberg Spot Dollar Index fell 0.6%.

• The euro rose 0.1 percent to $1.0619

• The Japanese yen rose 3.3% to 132.43 per dollar

• The offshore yuan rose 0.2 percent to 6.9694 per dollar

• The British pound changed little at $1.2154

Digital currencies

• Bitcoin rose 1.3% to $16,795.87

• Ether rose 2.7% to $1,207.65

bonds

• The yield on the 10-year Treasury note advanced eight basis points to 3.66%.

• Germany’s 10-year yield advanced 10 basis points to 2.30%

• The yield on the 10-year UK Bund advanced 14 basis points to 3.64%.

goods

• Brent crude fell 0.9 percent to $79.11 a barrel

• Spot gold rose 0.6 percent to $1,797.96 an ounce

This story was produced with help from Bloomberg Automation.

– With the help of Jason Scott.

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