BOJ policy review keeps the bond market guessing
All the talk in the market today is about bond yields and blaming it on the Federal Reserve but the news overnight was from the Bank of Japan.
Later today the BOJ's policy review is due out but Nikkei leaked that they will raise the target yield on 10-year JGBs to +/- 0.25% from +/- 0.20%.
This is the current language in the statement:
The Bank will purchase Japanese government bonds (JGBs) so that 10-year JGB yields will remain at around zero percent. While doing so, the yields may move upward and downward to some extent mainly depending on developments in economic activity and prices. With regard to the amount of JGBs to be purchased, the Bank will conduct purchases in a flexible manner so that their amount outstanding will increase at an annual pace of about 80 trillion yen.
They will also say that ETF buying will only be used in times of market turmoil and that the 6 trillion yen ETF buying target will be dropped.
Japan 10-year:
In the bigger picture, the BOJ tightening policy -- even in this marginal way -- shows you that even the most-dovish central banks are turning.
It's leading to a flight out of bonds because the only trade in bonds the past year has to been selling them for more than you paid, rather than clipping coupons. Given that the entire fixed income market looks like a big ponzi, you get these rushes out because the mark-to-market loses can quickly pile up.
