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Global markets fluctuated with the statements of the two central bank governors.
When messages from Fed Chairman Jerome Powell about recent bond yield developments weren’t satisfying the markets, sales accelerated. The remarks by Bank of Japan Chairman Haruhiko Kuroda, on the other hand, eased the markets to some extent.
Unlike the central banks of other developed countries, the Bank of Japan, which officially implements the target yield curve regime, will not take a step to steer the curve. Kuroda made a statement, “It is neither appropriate nor necessary to do this,” following speculation that the movement band of the 10-year return target will be expanded.
Speaking in the Japanese parliament, Kuroda stated that they are not in the expansion phase of 0.3 points to either side of the target of the 0 percent yield curve and said: “At this stage, more discussion is needed to this step”.
The Bank of Japan refraining from steepening its yield curve in an environment of rising bond yields resulted in the recovery of some of the risky asset losses it had lost under Powell.
In the S&P 500, which closed 1.3 percent lower on Thursday, futures fell a middle 0.7 percent on the new trading day, but leveled off after the move. The Japanese Topix Index also limited its losses after falling more than 1 percent in the middle of the session. Similarly, South Korea’s Kospi and Hong Kong’s Hang Seng limited their losses.
The Bloomberg Dollar Index, which started the day up 0.2 percent, also turned horizontal.
Powell’s messages were not satisfying the markets
Fed Chairman Jerome Powell stated that he was following rising yields in the bond market, but gave no signs of intervening in this market. In his speech at the Wall Street Journal webinar, Powell commented on the recent surge in bond yields: “It’s a noteworthy move that caught my eye.” “I am concerned about market movements that could lead to a constant tightening of financial conditions that threaten the achievement of our objectives,” said Powell. In his speech, Powell repeatedly tried to ease the fragile markets by stating that he is too far away to withdraw Fed support. Expressing that they will be patient, Powell made the assessment “We are far from our goals.”
With the speech, losses on US 10-year bonds rose and inflation expectations rose to session highs. Investors’ expectations in the bond markets were that Powell would stabilize the markets with a signal of intervention, especially in long-term bonds.
“Powell is still a dove,” said Krishna Guha, vice president of Evercore ISI, who did not disclose. But not enough to avoid a further increase in bond yields, “he said.
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