Hawkish BoJ Announcement Moves Rates

Rates up on long end after housing, building data overshadowed by BOJ decision. The US Treasury curve continued steepening today, with the 2-year yield declining slightly by ~3bps to 4.25% and the 10-year rising ~10bps to 3.86%. The moves were largely due to the Bank of Japan’s hawkish announcement last night. Domestically, pertinent economic data showed that new US housing construction and building permits declined in November, despite housing prices increases.

BoJ increases 10-Year yield cap. BoJ Governor Kuroda announced today that the central bank will double the cap on 10-year yields from 0.25% to 0.50%. This move comes after decades of yield curve control which has kept the Yen weak and driven negative short-term yields. Some analysts believe that this is a first step toward exiting their current stimulus policy and opening the door for a possible rate hike in 2023. The Yen strengthened immediately after the announcement from 1 USD buying 137 JPY at 10:00 PM EST to a low of 131 JPY today. Japanese 10-Year yields rose ~15bps from ~0.25% to ~0.41%. 

Day Ahead. Tomorrow’s highlights are Existing Home Sales at 10:00 AM EST and the U.S. Current Account Balance for Q3 at 8:30 AM EST, which is a direct input into GDP.