The Japanese rates space has been pressured since the start of the year, 2yr JGBs have risen an impressive 30bps YTD to reach the highest level since 2009 while the 10yr JGB breached the 1% level on Wednesday
UST-JGB premiums have not moved widely, and the front-end continues to favour the dollar by about 460bps. In fact, the 2yr UST-JGB spread has widened around 20bps since May 15
This does not mean that USD/JPY should go straight back to 160.0, but it does not favour yen strength either. Especially as volatility declines and traders have re-engaged in carry trades
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