Global bond markets took a hit after the Bank of Japan’s sudden policy move

Global government debt markets fell on Tuesday after the Bank of Japan surprised markets by adjusting its policy of fixing long-term bond yields at rock-bottom levels.

The move sparked a sell-off in government debt, with the yield on 10-year Japanese bonds rising as much as 0.19 percentage point to 0.44 percent, according to Bloomberg data, the highest level since 2015. It later fell to 0.40 percent.

Other sovereign debt yields rose, reflecting a decline in prices. The yield on US 10-year Treasury notes rose to a three-week high of 3.68 percent, while Britain’s 10-year yield rose 0.09 percentage point to 3.58 percent, and Germany’s 10-year yield rose 0.1 percentage point. to 2.29. percent.

The Japanese yen jumped 3.9 percent to trade at 131.7 yen against the US dollar. The pound rose 0.3 percent against the dollar, to $1.22.

the BoJ It expanded the range in which it allows 10-year bond yields to trade, allowing it to fluctuate by 0.5 percentage point or more from its target of zero, instead of the previous 0.25 percentage point. The country first enacted a policy of “yield curve control” (YCC) in 2016, and the 0.25 percentage point range has been in effect since 2021.

Bank of Japan Governor Haruhiko Kuroda denied that the move marked a turning point away from Japan’s ultra-loose monetary policy, saying the yield target adjustment “does not signal the end of YCC or an exit strategy.” The Bank of Japan kept overnight interest rates at minus 0.1 percent, setting it apart from other major central banks that have raised interest rates this year quickly in a bid to tackle soaring inflation.

Tohru Sasaki, head of Japanese market research at JPMorgan, said the BoJ’s move was the result of concern about the impact of volatility in global markets on Japanese markets. “If a market imbalance is also an important reason for today’s move, another move may follow because only 25 [basis point] It can’t finish moving or improve the imbalance.”

“It is important not to underestimate the potential impact of this, as the Bank of Japan’s tighter policy will remove one of the recent global anchors that helped keep borrowing costs at low levels more broadly,” said Jim Reid, head of global credit strategy at Deutsche Bank.

Japanese stocks slipped, with Topix down 1.5 percent, but other major benchmarks largely ignored sharp moves in bond markets.

Wall Street’s S&P 500 recovered morning losses to close the day 0.1 percent higher, while the tech-heavy Nasdaq Composite was flat.

Meanwhile, the Stoxx 600 in Europe closed down 0.4 percent, while the FTSE 100 in London rose 0.1 percent.

Frederick Repton, portfolio manager at Neuberger Berman, said the central bank’s decision “will intensify speculation that a pivot or even abandonment of YCC could happen in the new year.”