BOJ surprise
December 20, 2022
–Yesterday I linked a story from Reuters that reported BOJ might change its ultra loose policy in April with a new BOJ Governor. Today the BOJ surprised markets by expanding the band (cap) on JGBs from 25 to 50 bps, but also vowed to buy more bonds. Ten yr JGB had been stuck at 25 bps, but last is 41 bps. $/yen was around 137 but immediately dropped to 132. US curve is steeper on the move with the TY contract -17.5 to 113-19 and US down 1.5 points to 128-09. On the SOFR curve fronts are nearly unchanged, reds down 4.5 and blues -7.5. US equities seeing additional pressure from yesterday. Gold has jumped back above 1800.
–Yesterday BBG’s Tracy Alloway reported an increase in US Fed Discount window borrowings. The increase is small, with the article linking the rise to smaller banks, and noting that it coincided with the crypto implosion. That’s how these things start!
–Over the weekend I noted that it’s rare for stocks to make new yearly lows in December. Nasdaq Comp was down 1.5% yesterday and this morning is only a few percent away from the year’s low of 10089. In fact AMZN and AAPL currently at year’s lows, as is TSLA. A lot of similarities to late 2018, which ultimately resulted in the final Fed hike in December, followed by Treasury Sec’y Mnuchin having to call the heads of banks together to assure the markets of adequate liquidity. Forced pivot. BOJ is just helping move things along.
