J.P. Morgan Fixed Income views 4Q 2017 and a question

Discussion in 'Economics' started by Pluralsight, Nov 27, 2017.

  1. Taken directly from J.P. Morgan Fixed Income Views 4q 2017 (https://am.jpmorgan.com/us/en/asset-management/gim/adv/insights/portfolio-insights-gfiv):

    "U.S. rate expectations
    Longer term, we do not expect a balance sheet run-off tantrum, but instead, we expect a gentle rise in rates. One of the reasons that U.S. rates are unlikely to move that high—or that quickly—is the Bank of Japan (BoJ). Its yield-curve control policy means that every time U.S. or global rates move higher, the bank is forced to intervene in size, to print money to stem rising bond yields. That money, in turn, buys Treasuries.

    In the near term, we do expect the Fed to raise rates in December, supported by both higher growth and higher inflation. For the 10-year U.S. Treasury, the same forces that kept rates range-bound over the last three months are still in play. We expect only a modest rise in rates, to between 2.25% and 2.75%, by year-end."


    I'm not sure I understand the bolded sentence, i.e why would the BoJ be hasty to buy Treasuries every time U.S yields go higher. Any ideas out there? I have an idea of why this might be, and I'm writing this below just to show that I put some thought in this before asking on the forum. This explanation of mine contains strong assumptions however and could very well be wrong. Any input for the real explanation would be appreciated.

    My idea:
    To start from the basics, obviously the BoJ wants to keep its 10 year yield close to 0, as part of its yield curve control. So everytime the Us yields go higher, there is somehow the possibility that the 10 year JGB yield will rise. I'm assuming that's because someone actually sells the the JGB's. And I'm again assuming here that this shorting is perhaps speculators doing the carry trade, like I had talked about in a previous thread only the loan they take is the JGB rather than just hard yen currency. I'm not sure though why they would do that.
  2. It's not the BoJ. It's the various Japanese investors who recycle JPY they get from the BoJ into various foreign assets, such as Treasuries.
  3. DeltaRisk


    It has never been about the cost of money, it is the quantity. They are lying.

    But, what do I know?