HALISTER1: JPY Rates Vol May Drop Toward Nikkei 225 on Yield Fix: Charts

JPY Rates Vol May Drop Toward Nikkei 225 on Yield Fix: Charts

(Bloomberg) -- JPY long-tail gamma has room to close gap with Nikkei 225 vols as BOJ narrows distribution of long-end rates (see chart here), Bloomberg strategist Tanvir Sandhu writes.
  • BOJ is guiding the market to where the fair curve is to be by conducting fixed-rate purchase operations and targeting 10-year JGB yield at current levels
  • Rates volatilty may continue to fall with BOJ applying tighter control on JGBs, in turn narrowing the distrubition of rates
  • JPY 3m30y implied vol -6bp/annual at 54bp/annual while rates curve twist-flattened
  • Nikkei vol has declined after BOJ announced buying of ETFs that track TOPIX, with no cut to IOER supporting financials
  • BoJ will purchase JGBs “so that 10-year JGB yields will remain more or less at the current level” while “In case of a spike in interest rates, the Bank stands ready to conduct fixed-rate JGB purchase operations”, see more here
  • NOTE: Tanvir Sandhu is an interest-rate and derivatives strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice.
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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