Rates as of 0530 GMT

Market Recap

USD kept powering ahead as US yields rose further. The twoyear yield, which is sensitive to expected changes in monetary policy, was up a particularly sharp 11 basis points BPs as the market continues to discount more and more Fed tightening.

On the other hand, JPY reversed its gains from Tuesday and fell sharply after the Bank of Japan doubled down on its yield curve control YCC policy, in which the BoJ pledges to keep the 10year Japanese government bond JGB yield within a range of 0.25 of 0.0. There was some thought that the BoJ might trim its forward guidance a bit at this meeting and take out some references to additional easing measures in order to relieve the pressure on the yen. On the contrary, the BoJ said it would offer to purchase 10year JGBs at 0.25 percent every business day through fixedrate purchase operations, unless it is highly likely that no bids will be submitted. Last month the BoJ just said that it would purchase a necessary amount of Japanese government bonds JGBs without setting an upper limit so that 10year JGB yields will remain at around zero percent.

The contrast between the BoJs determination to keep rates from rising and the trend in virtually every other bond market in the world, particularly the US, is striking. This monetary policy divergence propelled USDJPY over 1.30 this morning for the first time in almost exactly 20 years April 23, 2002.

So long as the BoJ persists in this position, I cant…