Today, looking at the Hong Kong and US markets, bond yields are showing a sharp decline that could be called a shock.
In today's domestic market, as Japanese 10-year government bond yields hit 2.93%, macro traders simultaneously switched to selling amid concerns about yen carry trade liquidation.
The market, which had a good atmosphere until this morning, saw a sharp reversal and ended down.
The US market is also in a bad mood now, and I think talks about Kevin Walsh will start being mentioned more.
Kevin Walsh has opposed supplying liquidity through bond purchases since before taking office.
QE has been ongoing since around December last year, but since the change to Chairman Walsh, the Fed has been discontinuing bond holdings and proceeding with asset reduction.
New bonds are not being purchased, and only maturing bonds are being reinvested. The Fed is maintaining a neutral asset size and reserve balances are also temporarily suspended.
The problem is that despite Walsh's statements supporting QT, bond traders who expected interest rates to rise as bond yields rise this much are now questioning inflation indicators and are selling long-term government bonds.
As a result, 30-year government bond yields are hitting 20-year highs, and the market is naturally tightening itself, with significant pressure continuing from rising mortgage rates and corporate bond rates.
To lower government bond yields from here
Show improvement through a ceasefire with Iran and lower oil prices to weaken inflation
Raise the base rate to reduce the burden of 10-year government bond yields
Trump pressures Kevin Walsh to have him buy the bonds released into the market
There are 3 methods that can be executed right now.
Method 1 is currently resulting in the market briefly reacting because the US and Iran have shown too many lies, then returning, and as of now, method 2 seems most likely...
Without raising rates, the Fed could also lower government bond yields through bond purchases, but.....
Since Kevin Walsh is so stubborn, it's hard to tell.
Bond traders are already talking a lot about not providing forward guidance. The market is now in chaos, and even though rates need to be raised, the lack of clarity about the future direction regarding not raising them is causing more selling.
One way or another, short-term headwinds are now accumulating, and whether the BOJ raises rates will mark the end of this chaotic mess. The September crisis theory seems to be proving increasingly correct.
