Analysts at ING note the apparent improvement in U.S.-China trade has triggered a sharp steepening in the US yield curve and ING’s rates team thinks that steepening in the 2-10 curve is probably limited to the 30bp area, suggesting that US 10 year yields stall around 2.00%.
- “Given USD/JPY typically has one of the tightest correlations with US yields, the above views suggest USD/JPY may not have too much more upside mileage at this stage – perhaps 110.80 might be the best case on the week if we are under-estimating the scale of this bond tantrum.
- In Japan, the focus will be on Thursday’s release of 3Q19 GDP data – expected at 0.2% QoQ. It's expected to be supported by front-loaded consumption ahead of the October sales tax hike. We’ll also be watching the regular portfolio flows data and whether Japanese buying of foreign bonds is accelerating. That's been implied by recent surveys of Life Insurance managers and Japan’s largest fund manager, the GPIF, suggesting it was making room for larger unhedged foreign bond purchases. Indeed, we’re starting to doubt whether USD/JPY will make it below 105 over coming quarters. We're also not too distracted by the President Trump impeachment process – which we rather see as noise for FX markets.”