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The battle of the long ends

The Bank of Japan has relaxed the #ycc policy (Yield Curve Control). Kazuo Ueda, the new head of #boj, has somehow moved away from his predecessor policy, whose obsession was to anchor the long end of the #jgb curve, which was selling off due to an inflation spike. The long Japanese bond yield has moved 20% from 0.5% to 0.6% over the last few weeks, and that has put pressure on the long end of the US treasury yield curve, which not only has to cope with Fitch downgrade, but also with a more attractive Japanese bond. Unlike its US counterpart, Japan long end still offers a deeply negative real yield, which is another reason why the bond is selling off. This arbitration offers the US an opportunity to partially reverse the inversion of the yield curve, which is a predictor of recessions. The real market action over the next few months, will be on the long end of these curves, and the US dollar.

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