JGB 10−year yield

Nicole Elliott from Mizuho Corporate Bank at 01/21/10

Comment: It may not appear so but Japanese benchmark treasury yields are a lot lower than they were eighteen months ago and close to their record lows of 2003. For example five-year JGBs now yield 50 basis points as opposed to a peak at 1.50% in 2006, 2007 and 2008; two-year just 15 basis points against 90 or 100 then. Hard to believe but benchmark ten-year JGB yields have been trading around a mean of 1.500% for twelve years, holding between the psychological 1.000% and 2.000% most of the time (1.60 Standard Deviation). A series of fractionally lower high yields since 2006 continues, gathering a little pace since mid-2008, and the spread over two-year at 120 one standard deviation over the mean. Though momentum is not as bearish (for yields) as one might expect, we feel there is a good chance of a cautious downside probe, to 1.160% and potentially a ‘spike low’ around 1.000%.

A sustained monthly close above 1.400% forces a review.