U.S. Treasury yields are declining today due to increased risks associated with peaks in new coronavirus cases
There is a trend to reduce the yield gap between Japan and the rest of the world
The 10-year yield has fallen from 0.872% to 0.746% in the last few days
The yield on the 10-year Treasury Bond has continued to decline, having fallen to 0.758% today. Meanwhile, it appears that Japanese life insurance companies are returning to the domestic bond market as the yield differential between them and foreign rivals is narrowing as a result of the coronavirus pandemic.
Fundamental analysis: Pandemic causes stocks and yields to fall
U.S. Treasury yields are now declining due to the increased risks associated with the peaks in new coronavirus cases.
“The US Treasury bull market flattened further overnight as global risk assets came under pressure, leading to renewed lockdown momentum in Europe,” said Ian Lyngen, BMO Head of US Interest Rates, in a note Wednesday.
“The impact of a resurgence of the pandemic with the onset of winter will guide domestic stocks in the medium term,” said Ian Lyngen, head of U.S. interest rate policy.
Elsewhere, Japanese life insurers intend to add more domestic fixed income assets to their portfolios while trying to reduce foreign debt in the second half of this fiscal year until March, officials said.
“For a long time, we invested mainly in US dollar bonds, but now that their yields have dropped to such low levels, we are no longer able to buy them aggressively,” said Koichi Nakano, director general of investment planning at Meiji Yasuda Life, a Tokyo-based life insurance company.
Institutional investors in Japan have for years relied on foreign bonds as their main source of income due to the lack of domestic interest income in the face of the Bank of Japan’s ultra-light monetary policy.
However, following the Covid-19 outbreak and the extraordinary stimulus packages put together by central banks around the world to help economies recover, bond yields in the U.S. and elsewhere have flattened, narrowing the yield differential between Japan and the rest of the world.
Technical Analysis: Approaching 200-DMA
The 10-year US Treasury yield has remained in its 0.5-0.8% range after falling to a historic low of 0.318% after the coronavirus outbreak in March. A number of investors are concerned about holding foreign bonds without currency hedging, as they predict that the USD/JPY pair will fall in the face of the sharp decline of the dollar in mid-2020.
US 10-year yield (TradingView)
However, the use of hedges can limit the profits from US bonds. The 10-year yield has fallen from 0.872% to 0.746% in the last few days and is approaching 0.72% of support in the vicinity.
The yield of the 10-year U.S. Treasury Department has further decreased today due to the increased risks worldwide as the number of new COVID 19 cases increases.