By Joel Lewin
Japanese government bonds hit a six-month low today, and the 10-year came within a whisker of breaking into that long forgotten realm of positive yields.
It’s been a ferocious sell-off- the worst in two decades to be precise.
Since the 10-year JGB yield hit a record low -0.291 per cent at the end of July, yields have rocketed amid widespread headscratching over what the future holds for Japanese monetary policy, writes Joel Lewin.
Japanese government bonds across all maturities have racked up a 2.75 per cent loss so far this quarter, the worst quarterly performance since 1998, according to Bank of America Merrill Lynch indices.
If you were unfortunate enough to have hopped aboard the JGB train at the start of this quarter, you have every right to feel aggrieved.
But holders of JGBs from the start of the year are still sitting on some fairly hefty gains- in the first quarter they returned 4.25 per cent, the best quarterly return in 18 years.
The long-bond sell-off has been even more brutal.
JGBs with maturities longer than 10 years have racked up a 5.9 per cent loss so far this quarter, the steepest in 13 years.
The BoJ is due to publish a review of its policies later this month. But as Robin Harding notes, a communication blitz designed to explain this comprehensive assessment of its policies has left markets more confused than ever.
Whether the BoJ will back away from negative rates, cut rates even further below zero, ramp up or revamp its bond purchases or even do nothing at all remains a mystery. The only thing that’s crystal clear is JGB holders are hurting right now.