HALISTER1: BOJ Yield Targeting Re-Frames ECB, BOE Policy Options, RBC Says

BOJ Yield Targeting Re-Frames ECB, BOE Policy Options, RBC Says

(Bloomberg) -- The BOJ’s policy shift to “QQE with yield curve control” will be important for European markets as it re-frames the policy discussions around the forthcoming ECB meetings, RBC analysts write in client note.
  • An attempt to cap long-term bond yields hasn’t been tried before, save the more vague caps introduced during the ECB’s OMT operation, so today’s announcement introduces a new modus operandi instead of simple quantitative targets for bond buys
  • Given the ECB and the BOJ face very similar challenges, market players may start thinking about whether this offers a new line of thinking for European policy makers
  • Given current constraints and that it’s mainly the peripheral markets that are struggling, it would be interesting to see if such targeting is feasible on Europe’s higher-yielding assets
  • Expect the short end of bund curve should remain well supported and the steepening theme is likely to continue, with the ultra-long sector particularly vulnerable
    • Favor Schatz long via options and against the EONIA curve, and long straddles/strangles in the bund contract; have also recommended shorts in 15Y15Y GBP and inclined toward EUR and GBP steepening trades
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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