Loading ...Blockbuster Demand For 2Y Trasury Auction Sends Yield To 8 Year Low
Just hours after the BOJ joined the global “nuclear” central bank response, when it announced the launch of unlimited QE, demand for today’s 2Y Treasury auction was not coincidentally off the charts, with the yield tumbling further to just 0.229% down from 0.390% last month, stopping through the When Issued by 1.3bps – the biggest since May 2016 – and the lowest since July 2012
Regardless of which route the US ultimately goes, the BOJ today went all in and announced unlimited bond buying. Of course, they already hold a huge share of the huge stock of JGBs; but with PM Abe approving a fiscal stimulus package of up to 20% of GDP, there will soon be lots more to buy. Note the BOJ already has yield curve control at the short end and for 10 years. It has to be said that so far even that news did not seen USD/JPY boosted: then again, we could argue buy the rumour sell the fact, because we all knew what the BOJ would have to do.
So Japan is doing it. And so is Canada – if we are talking about the central bank being a bulk buyer for public debt; so is Poland; and so are ‘financial stalwarts’ like Indonesia, with its often-wobbly IDR, where a chunk of corona-fighting public spending was just directly monetised in the primary market. That drops the polite pretence that by using the secondary market central banks aren’t actually doing the same thing as bond issuance soars.
However, China’s PBOC once again reiterated Sunday that it won’t be joining the massive liquidity party (although to be fair it got to there first, drank all the good booze, and ate all the dips). Governor Yi Gang used an editorial to stress he expects the economic shock from Covid to be short and the economy to bounce back (though industrial profits were -34.9% y/y in March). He was also concerned that “too aggressive” macro stimulus would lead to inflation and too much leverage in China’s over-leveraged asset-based economy. So, confidence and prudence. Two items in short supply elsewhere.