Sunday, July 21

The Downfall of 10-year JGBs & the Role of the Delta Variant

The COVID-19 pandemic that took the world by storm has brought about chaos, panic, and worst of all, biological mutations and variants of viruses that continue to grow deadlier, contagious, and far more under-detected than the original. For context, the current strain being dealt with is the Delta Variant, also referred to as the B.1.617.2. According to the CDC, this can spread more easily, and it is now the dominant strain in the U.S.

Moreover, this strain has had a notable impact on Japan’s market, as the bond yields of the Japanese government fell. The main result of the concerns regarding the Delta variant, alongside the consequences of the Bank of Japan’s bond-buying operation, was the 10-year yield touching a seven-and-a-half-month low of zero percent.

To provide more insight into the market, a 2.6 trillion yen 10-year JGBs auction anchored in the attention of a decent demand, which in term rendered in the much-required support for the market at the time. This is especially commendable considering the yield was, for this particular year, at its lowest levels so far! Ataru Okumura, a strategist at SMBC Nikki Securities, stated the following regarding the event:

“Yesterday’s auction confirmed there is reasonable demand even at the yield of 0.01%. But there is a wall before going into negative levels, and I think we need fresh catalysts for that to happen.”

Additionally, a fall was seen in the 10-year JBG yield from a 0.5 basis point to 0.000%, this is integral to mention considering that this was the first time the zero percent was being touched upon even since the 16th of December. Similarly, a significant period has been recorded since the trade in the benchmark issue, and it is historic considering there has been none for up to two months ago.

Furthermore, to observe views at the longer end, the 20-year JGB yield displayed a fall in 1 basis point to 0.470%, alongside the 30-year yield dropped 0.5 basis points to 0.625%., which reflects seven-and-a-half-month low progress. There was also a fall from 0.5 basis points to minus 0.135% in the five-year yield, which is a recognized low taken note of since September of 2020.

As to provide more insight into where the current situation stands, the BOJ has bought JGBs in three maturity-based categories, those with one to three years, three to five years, and 10 to 25 years to maturity, within the last week primarily. Certain market players state that the purchasing of it in the three to five-year zone produced particularly strong results, and as of the latest statistic received, Benchmark 10-year JGB futures price rose 0.06 points to 152.50.

Leave a Reply

Your email address will not be published. Required fields are marked *