Intriguing RV graphs: Only Japan lacked yield curve flattening during September central bank week【 Fixed Income Commentary 】

Key arguments

• Japan was the only major economy whose government bond yield curve did not flatten after September central bank week; it steepened slightly instead.
• The BoJ's split 7-2 vote and the retention of reflation-linked officials in the Cabinet reshuffle were likely read by markets as a cautious, reflationary policy stance.
• Japan-specific factors, not just global inflation, are driving renewed concerns that the BoJ is falling behind the curve.
• MUFG sees the 2s10s JGB spread unlikely to narrow and warns of higher-than-expected 10-year JGB yields.

Corresponding source evidence

1. Sharp rise for inflation expectations relative to other major markets ■ Concerns about the BoJ falling behind the curve likely to persist.
2. In that case, 2s10s spread unlikely to narrow; wary of higher-than-expected 10yr JGB yield In this report we examine changes in government bond yield curves across countries following the central bank week in September (Graph 1).
3. In September, the ECB and the Fed each decided to raise interest rates by 25bp on the 10th and 16th, respectively.