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US Treasury yields rise after massive move in Japanese government bond yields

Key Points
  • U.S. government debt yields rose on Monday, tracking a massive move in Japanese rates, following reports that the Bank of Japan could adjust its monetary policy.
  • "Although [the Bank of Japan] tried to really make clear this wasn’t a tightening policy, the market looked at it as another step away from easy money," said Kathy Jones of the Schwab Center for Financial Research.
  • U.S. President Donald Trump told CNBC in an interview that aired Friday that he was “not thrilled” about rising interest rates.

U.S. government debt yields rose on Monday, tracking a massive move in Japanese rates.

The yield on the Japanese 10-year note jumped more than 4 basis points Monday to its highest level since February following reports late last week that the Bank of Japan could adjust its monetary policy to make the program more sustainable.

The yield on the U.S. benchmark 10-year Treasury note followed suit, rising 7 basis points to 2.96 percent at 1:21 p.m. ET, while the yield on the 30-year Treasury bond up at 3.094 percent. Bond yields move inversely to prices.

The Bank of Japan is holding preliminary talks on making changes to its interest-rate targeting and stock-buying techniques, sources told Reuters. Any such shift would come years after BOJ Governor Haruhiko Kuroda started a massive bond buying initiative in 2013 to help eradicate deflationary pressures and buoy prices.

"Although [the Bank of Japan] tried to really make clear this wasn’t a tightening policy, the market looked at it as another step away from easy money," said Kathy Jones, chief fixed income strategist for the Schwab Center for Financial Research. "The idea that their yields would go up — albeit from nothing to 7 basis points — that really spooked the markets."

The central bank has been gradually reducing its bond buying since September 2016, but remains one of the most lax in terms of quantitative easing. Japan's inflation is seen as unlikely to top the BOJ's target of 2 percent despite aggressive bond purchases.

U.S. Markets Overview: Treasurys chart

"On Friday, the BOJ began to reenergize the notion of looking at their policy in a way that could steepen the yield curve," said Robert Tipp, chief investment strategist at PGIM Fixed Income. "The message previously was that they don’t want too much volatility, but they might want a bit of a fine-tuning. All of those things plus the exchange with Iran, a little bit of geopolitical risk – they’re all curve steepeners."

Rates were also higher thanks to comments from the White House last week, according to market watchers.

U.S. President Donald Trump told CNBC in an interview that aired Friday that he was “not thrilled” about rising interest rates, and expressed concern that the U.S. Federal Reserve could upset the economic recovery.

“We go up and every time you go up they want to raise rates again. I don't really — I am not happy about it. But at the same time I’m letting them do what they feel is best.”

Presidents rarely intercede in matters pertaining to the Fed, which sets the benchmark interest rate that impacts many types of consumer debt. Fed officials, including Chairman Jerome Powell, have raised interest rates twice this year and have suggested the central bank could hike twice more before the end of 2018.

Sticking with Washington, investors will be keeping an eye on the States after Trump threatened Iran’s leader Hassan Rouhani to “never, ever threaten” the U.S. again or else “suffer consequences”.

The U.S. leader’s tweet comes shortly after President Rouhani issued his own warning to Trump about pursuing hostile policies against Tehran.

Elsewhere, investors will be keeping a close eye on the trade spat that has been going on between the U.S. and major economies such as China and the European Union.