European yields move higher as market accepts BoJ policy shock

Global bond markets steadied on Wednesday following a sharp sell-off triggered by the Bank of Japan’s surprise decision to ease its near-zero yield-fixing policy.

The yield on the US 10-year Treasury note rose 0.01 percentage points to 3.69%, having previously touched a three-week high of 3.71%. German and British bond yields were also slightly higher, contributing to Tuesday’s sharp gains.

The bond market was rocked by the BoJ’s announcement that it would allow 10-year Japanese bond yields to climb as high as 0.5%, from 0.25% previously. While Governor Haruhiko Kuroda stressed that the move was not a shift away from Japan’s extremely loose monetary policy, investors sensed a crack in the BoJ’s resolve to stay out of the global race to higher interest rates.

“The BoJ has taken the first step towards tighter monetary policy,” said Ulrich Leuchtmann, currency strategist at Commerzbank.

The yen was little changed on Wednesday at 131.7 to the dollar, after gaining nearly 4% on Tuesday.

The BoJ’s decision comes after US Federal Reserve Chairman Jay Powell said there was “a lot more work to be done” in curbing US inflation following last week’s rate hike, while Christine Lagarde, President of the European Central Bank, said the rate hike was “not done”. price.

“The Fed, ECB and BoJ have all delivered hawkish surprises over the past week,” said Steve Englander, head of G10 forex research at Standard Chartered. ” to markets that are entering the Christmas period.

European stocks soon rallied on the back of calm in bond markets, with the Stoxx 600 across the region up 0.73%. The UK’s FTSE 100 rose 0.39%, while France’s CAC 40 and Germany’s Dax gained 0.77% and 0.72%, respectively.

On Wall Street, futures tied to the tech-heavy S&P 500 and Nasdaq posted 0.7 percent gains at the open Wednesday for both indexes.


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