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1 May 2013
Forex Flash: The impact of BoJ easing on global fixed income - Goldman Sachs
FXstreet.com (Barcelona) - Goldman Sachs analysts note that on April 4, the Bank of Japan announced a much stronger than expected monetary policy stimulus and the combination of larger purchases and maturity extension had a significant and immediate positive impact on the Japanese and foreign fixed income markets.
They expect the BoJ easing to continue to have an impact on domestic yields, but see no strong evidence that the BoJ asset purchases program will continue to have a sizable spill-over effect for other developed government bond markets. They forecast an increase in 10-year JGBs from current levels. They write, “Our end-2013 forecast is 75bp, up from 58bp currently and roughly in line with the forwards. The BoJ’s injection of liquidity should ease financial conditions significantly, supporting growth and inflation expectations. This, together with higher US nominal interest rates, should push up interest rates (mostly through an increase in ‘breakeven’ inflation), more than compensating for the downward pressure on yields as a result of the lower net supply of JGBs available for private investors.”
They expect the BoJ easing to continue to have an impact on domestic yields, but see no strong evidence that the BoJ asset purchases program will continue to have a sizable spill-over effect for other developed government bond markets. They forecast an increase in 10-year JGBs from current levels. They write, “Our end-2013 forecast is 75bp, up from 58bp currently and roughly in line with the forwards. The BoJ’s injection of liquidity should ease financial conditions significantly, supporting growth and inflation expectations. This, together with higher US nominal interest rates, should push up interest rates (mostly through an increase in ‘breakeven’ inflation), more than compensating for the downward pressure on yields as a result of the lower net supply of JGBs available for private investors.”