Archives of “March 2021” month

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US dollar climbs after Fed ends SLR exemption

  
  Analysis

Yields higher

The US dollar is near the best levels of the day after the Fed announce that it would end an exemption that allowed banks not to have to post capital buffers against Treasury holdings. The result of Treasury liquidation but much of it was likely frontrun.
In the aftermath US 10-year yields are up 2.7 bps to 1.73%.
The US dollar is being dragged higher along with the move. As a result, EUR/USD is down 36 pips to a session low of 1.1879. Cable is also challenging the pre-FOMC low of 1.3851, down nearly 80 pips on the day and a full cent from the highs a few hours ago:
GBPUSD chart
The news schedule is very light today so moves from here will be all about the interactions between stocks, bonds and FX.

10-year JGBs keep calmer after BOJ policy decision

  
  Analysis

Little reaction in the Japanese bond market

JGB

10-year JGB yields are little changed on the day after a bit of a spike on the BOJ policy decision earlier, in which the central bank said it will widen the yields band to +/- 0.25%.
It is also the first time that the central bank made mention to the yields band in its policy statement, so this is now a rather official piece of policy setting in some ways.
That said, 10-year JGB yields are keeping a little higher relative to the start of the week, though not by much. In some sense, the leaked story on this since a week ago may have already given the market plenty of time to prepare itself.
But also, the jump in yields this week owes in some part to the surge in Treasury yields yesterday as well – causing a spillover impact to other bond markets.
JGB
In the bigger picture, yields look to be settling into a bit of a range above 0% and the BOJ widening the band to 0.25% is but an acknowledgment of that.
While that could be seen as yen supportive, the fact that the BOJ is still keeping a rather tight lid on yields and their reiteration that YCC is still much needed, means that any major shift in policy thinking may not be as major as one would think.
For the BOJ, sure this can arguably be considered as a massive fine-tuning since they aren’t typically known to even explore any hawkish possibilities.
But when the central bank itself also owns two-thirds of JGBs in the market, it may not be quite as big a change as played out to be perhaps.

USD/JPY sees not much to work with following BOJ policy decision

  
Analysis, Forex

USD/JPY keeps little changed on the day after an initial spike higher

USD/JPY H1 19-03

Was the BOJ more dovish or hawkish today? That’s a question that yen traders may not necessarily get the answer to in the immediate aftermath.

There were a couple of key takeaways from the policy decision, so let’s explore:
  • BOJ removes ETF target purchases, but keeps ceiling of ¥12 trillion
  • BOJ widens range of 10-year JGB yields fluctuation to +/- 0.25%
  • Introduces interest scheme to mitigate side effects of cutting rates again, if needed
  • Introduces fixed-rate purchase operations to prevent significant yields rise
  • Judges that QQE and YCC are still appropriate policies to continue with
The first two points are arguably leaning more towards the hawkish side, though of the key takeaways above have already been communicated in the run up to the meeting via media leaks and reports over the past week or so.
However, the BOJ still judges that large scale ETF purchases are still effective in keeping the market more stable during times of “heightened instability”.
Meanwhile, this is also the first time that the BOJ has officially put the 10-year JGB yields band into its policy statement – before this it was just a verbal commitment.
The other remaining points lean more towards the dovish side, with the new interest scheme largely to try and convince the market that the BOJ does have room to cut rates further; after having been questioned persistently on the side effects of doing so.
As such, there is a mixture of elements in there for yen traders to work with. But ultimately, I reckon it’ll come down to how the JGB market may look to test the BOJ’s commitment of the 0.25% band above the 0% target.
Going back to the USD/JPY chart, traders look like they are still trying to make up their mind with Treasury yields also a key factor to watch out for.
Topside is limited around short-term resistance near 109.26-36 with the 200-week moving average @ 109.00 one to be mindful of ahead before the close today.
But overall price action continues to trade in and around the key hourly moving averages @ 108.90 and 109.07 respectively, with near-term support seen closer to 108.77 and also from yesterday’s low @ 108.63.
Those will be the key levels to watch in order to gauge how buyers or sellers are going to attempt to extend their bias in the pair ahead of the weekend.
Not forgetting that there is a decent-sized expiry ($840m) rolling off today at 109.00 as well. And just bear in mind that we are also approaching the fiscal year-end in Japan, though repatriation flows should arguably have been mostly done in the weeks prior.

BOJ policy review: Drops 6 tln yen ETF buy target, maintains 12tln yen ceiling

  
  Analysis

Bank of Japan also expands its JGB yield trading band to 25bps (from 20bps)

Both the ETF and JBG band decisions were widely expected.
  • BOJ will establish an interest scheme to promote lending
  • will take more policy action if needed
  • maintains YCC with QQE to achieve 2% inflation target
  • will purchase JGBs without setting an upper limit
  • appropriate to buy ETFs, REIT massively when there is large market destabilisation
  • excessively low superlong yields may be a negative for the economy
  • cutting rates an important option for easing – will adjust 3-tier reserve system if lower rates
  • scheme to mitigate the impact on bank profits when rates cut
  • maintains short-term interest rate target at -0.1%
  • maintains 10 yr target at around 0%
The two main planks of the pilcy decision were flagged for weeks in advance and the Nikkei highlighted the two measures as likely only yesterday. Thus the decisions come as little surprise.
As I post yen is not a lot changed after a minor wobble
Bank of Japan also expands its JGB yield trading band to 25bps (from 20bps) 

Bank of Japan policy review announcement due today – preview

  
  Analysis
#  #  #
There is no time scheduled for the announcement, after 0230GMT is a good bet. The Bank will be keen to ensure what it changes is not perceived as a reduction in policy support, Bank of Japan Governor Kuroda will likely emphasise this, and also that the Bank stands ready to do more if needed, at his news conference that will follow at 0630 GMT.
The much-awaited BOJ review of its monetary policy is aimed at making its programme of support sustainable for longer.

US Market : Stocks close near session lows. Nasdaq plunges over 3%

  
Analysis, US Market

Nasdaq breaks 3 day up streak

The US stocks are closing near the session lows with the Nasdaq leading the way. The tech heavy Nasdaq plunged over 3% lower and snapped a 3 day up streak. The other indices all closed lower as well.
The final numbers are showing:
  • S&P down -58.66 points or -1.48% at 3915.46
  • Nasdaq down -409.03 points or -3.02% at 13116.16
  • Dow -153.20 points or -0.46% at 32862.17.
The catalyst for the move lower was higher rates one day after the Chair Powell tried to reassure the market that the Fed would tolerate higher inflation and growth estimated to be as high as 6% in 2021.  The bond market did not buy the argument, however, and moved up as high as 1.7526% for the 10 year, before coming back down to 1.717% currently.
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