Halister News

(Bloomberg) -- JPY appreciation has potential to boost demand for USTs to the extent it suggests Japanese stimulus measures are failing and that Fed is handcuffed by threat of USD appreciation; it also enhances appeal of USD assets to Japanese investors, especially if they expect intervention to limit yen’s rise, strategists said in notes and interviews.

• BMO (Aaron Kohli)
  • UST curve flattened overnight as “yen getting stronger suggests a risk-off tone to the market” and “chatter around a possible Japanese intervention grew louder”
• CIBC (Richard Gilhooly)
  • “USD/JPY unhinged flashes February 11th risks” when UST “yields gapped to the lows of the year”
  • “Stability since has been reflected in higher risk appetite and also a decent sell-off in US bonds,” until “Yellen and FOMC cited global risks in mid-March,” and “now risk assets and USD/JPY are reflecting those risks”
  • Yen rally “signals unraveling of QQE benefits and BOJ/fiscal policy constraints”
• CRT (David Ader)
  • “Potential for Japanese intervention to weaken the yen (resulting in investable dollars that would presumably favor the front-end of the Treasury curve) once again got attention on Wednesday –- although actual action wasn’t reported”
  • “This is on the radar now and we’ll acknowledge it’s a challenge to the momentum that we’re relying on for our call of curve steepening and further consolidation”
• FTN (Jim Vogel)
  • “The big drop in Japan’s equity markets remind how difficult it is for an economy to weather a rich currency,” and “if the Fed moves toward normalization and the dollar rallies, then expect the market to punish U.S. stock prices as well”
  • “The press to find a ‘haven’ currency falls out from a conclusion global growth/trade will suffer a long comeback period”
• TD (Gennadiy Goldberg)
  • “In the current low-yield environment, a stronger JPY could make it more attractive for Japanese investors to invest in Treasuries in order to garner stronger returns”
  • “The cross currency basis is certainly a negative,” and suggests that “recent Japanese buying of Treasuries has likely been done outright”
  • “There could also be the implicit belief that the BOJ will not allow the JPY to appreciate uncontrollably, limiting currency downside for longer-term investors”