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11 Apr 2013
Forex Flash: JGB and yen volatility permeates markets – UBS
FXstreet.com (Barcelona) - JGB volatility has increased massively since the Bank of Japan announced a revamped easing program a week ago. Circuit breakers in JGB futures have been triggered on several occasions, and intra-day moves of up to 30 bp in 10y yields are no longer unheard of.
This matters because foreigners have steadily increased their holdings of JGBs and Japanese T-bills over recent years. According to Research Analyst Gareth Berry at UBS, “One of these factors, which attracted these flows in the first place was that, until very recently, the Japanese bond market boasted extremely low volatilities. The contrast with the turmoil in Eurozone bond markets was especially stark.”
There has been a lot of talk about BoJ easing possibly pushing Japanese real money offshore, but is there another channel through which yen weakness can arise? Put simply, now that rates volatility has spread to the shores of Japan, could the USD/JPY get a second wind from foreigners pulling out?
This matters because foreigners have steadily increased their holdings of JGBs and Japanese T-bills over recent years. According to Research Analyst Gareth Berry at UBS, “One of these factors, which attracted these flows in the first place was that, until very recently, the Japanese bond market boasted extremely low volatilities. The contrast with the turmoil in Eurozone bond markets was especially stark.”
There has been a lot of talk about BoJ easing possibly pushing Japanese real money offshore, but is there another channel through which yen weakness can arise? Put simply, now that rates volatility has spread to the shores of Japan, could the USD/JPY get a second wind from foreigners pulling out?