10-year Treasury yield hovers near 3-week high

Treasury yields were mostly lower early Wednesday, though the 10-year rate hovered near its highest level of the month after rising in the previous session following a policy shift by the Bank of Japan.

What yields are doing
  • The yield on the 2-year Treasury note
    fell to 4.232%, down from 4.264% at 3 p.m. Eastern on Tuesday. Yields and debt prices move opposite each other.

  • The 10-year Treasury yield
    was at 3.683%, unchanged from its level late Tuesday afternoon.

  • The yield on the 30-year Treasury bond
    pulled back to 3.681% from 3.735% late Tuesday.

Market drivers

Yields on the 10-year note and 30-year bond ended the New York session Tuesday at their highest since Nov. 30, according to Dow Jones Market Data. Global bond yields were lifted after the Bank of Japan unexpectedly increased the size of the band around the yield on the 10-year Japanese government bond, or JGB, to allow it to trade 50 basis points on either side of 0% versus a previous band of 25 basis points.

BOJ Gov. Haruhiko Kuroda emphasized that the move was meant to improve market functioning and wasn’t a tightening of monetary policy nor a step toward the exit from ultraloose monetary policy. But some investors nevertheless saw the move as a sign that the last remaining anchor on global interest rates could soon give way.

See: Why the Bank of Japan’s surprise policy twist rattled global financial markets

The 10-year Japanese government bond yield
was up by around 6 basis points 0.474% Wednesday, according to FactSet.

Aggressive tightening of monetary policy by the Federal Reserve and other major central banks has sent U.S. and global bond yields jumping in 2022.

U.S. economic data set for release Wednesday include third-quarter current-account figures at 8:30 a.m. Eastern, along with a December consumer confidence reading and a report on November existing home sales at 10 a.m.

What analysts say

“In what was initially thought to be a placeholder of a week, the Kuroda Factor has triggered a wholesale repricing in JGBs and added incremental bond bearishness to global fixed income. Investors have been left to ponder whether the selling pressure in Treasuries associated with the BoJ’s widening of the YCC (yield curve control) band was a one-off or if this will create a bearish underpinning as 2023 gets under way,” said Ian Lyngen and Benjamin Jeffery, rates strategists at BMO Capital Markets, in a note.

“Our take is that the 10 bp (basis point) knee-jerk spike in US 10-year yields reflects an appropriate concession for the policy change in Tokyo. It’s also worth highlighting that the BoJ doesn’t have a history of rapid shifts in monetary policy; at least not when it comes to reducing accommodation,” they wrote. “As a result, we’re anticipating a comparatively long runway for future hawkish alterations to YCC or policy rates. While we’re certainly sympathetic to the interpretation that this week’s band widening was ‘just the beginning’ of a hawkish pivot, the BoJ’s timeline isn’t such that another 10 bp selloff in Treasuries will be in the offing as a result — at least not anytime soon.”

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