The latest Market Talks covering FX and Fixed Income. Published exclusively on Dow Jones Newswires throughout the day.
0545 GMT - Japanese investors are buying fewer foreign bonds, a trend reinforced by historically high Japanese government bond yields and government measures to promote domestic ownership, Societe Generale rates strategists say in a note. The high cost of hedging foreign bonds can be mitigated by preferring cross-currency bond hedges over FX hedges, they say. On this metric, Italian and French bonds, or BTPs and OATs, respectively, offer the best risk-adjusted pickup, while long-end eurozone government bonds are the most attractive in terms of outright yield and carry protection, the strategists say. "But with the risk of Bank of Japan [interest rate] hikes, even two- to five-year eurozone EGBs could find some appeal," the strategists say. (emese.bartha@wsj.com)
0530 GMT - U.S. Treasury yields slide in Asian trade as oil prices fall on improved outlook for a solution in the Middle East. After days of threats to launch a new offensive against Iran, U.S. President Trump is prioritizing diplomacy and has said new talks with Iran will begin on Monday. Brent oil is down 7.65% at $83.23 per barrel, leading to a 4-6 basis point fall in Treasury yields across maturities. The 10-year yield is down 5.3 basis points to 4.690%, while the 30-year yield is down 4 basis points to 5.235%, according to Tradeweb. (emese.bartha@wsj.com)
0529 GMT - FX intervention alone is unlikely to reverse weakness in the Japanese yen on a sustained basis as wide U.S.-Japan rate differential remains a key driver, says Mahjabeen Zaman, head of FX research at ANZ.Unless the Bank of Japan normalises policy more quickly than expected or U.S. yields fall meaningfully, a durable yen rally is unlikely, she says. ANZ is retaining its year-end forecast for the U.S. dollar at 156 yen amid higher oil prices and Japan's persistent budget deficits, she says. The forecast also reflects the Bank of Japanese more hawkish bias in its recent policy meeting, she adds. (james.glynn@wsj.com; X @JamesGlynnWSJ)
0528 GMT - Several rounds of FX intervention since Thursday offer the yen short-term relief, RBC Capital Markets' Abbas Keshvani says in an email. "Current intervention is bolder," the director of Asia Macro Strategy says. "This latest episode of intervention is larger in size and more coordinated than the others," the director says. The effects "should last longer than the April/May intervention, which the market faded within a month," Keshvani says. The director notes suspected FX intervention today, coordinated U.S.-Japan FX intervention on Friday, and solo Japan intervention on Thursday. The dollar is 0.7% lower at 156.48 yen, LSEG data show. (ronnie.harui@wsj.com)
0527 GMT - There isn't any reliable evidence that political influence may have played any role in the Federal Reserve's most recent interest-rate decision, LBBW's Elmar Voelker says in a note. Rather, macroeconomic data from recent weeks created room to maintain a wait-and-see stance for the time being, the senior fixed-income analyst says. Among the data, Voelker refers most notably to the unexpectedly sharp decline in June inflation. "However, it seems to us that investors are now, to some extent, taking back the premature praise they had bestowed on [Fed Chairman Kevin] Mr. Warsh for his self-declared independence," he says. As a result, yields on very long-term U.S. Treasury securities rose post-FOMC, according to Voelker. The outcome is an additional push toward steepening the U.S. yield curve, he says. (emese.bartha@wsj.com)
0520 GMT - J.P.Morgan is pulling forward its expectations for a Federal Reserve rate hike to December this year from the second half of 2027, with policy rates on hold at 3.75%-4.00% thereafter, its strategists say in a note. In line with that, they raise their forecasts for the year-end level of 10- and 30-year Treasury yields. They now forecast the 10-year yield at 4.85% at the end of 2026 versus 4.70% previously. They also raise the 30-year target to 5.40% from 5.20%. The strategists see room for further steepening over the near term, driven by rising inflation expectations and a rising term premium. The 10-year Treasury yield is trading at 4.693% and the 30-year yield is at 5.236%, according to Tradeweb. (emese.bartha@wsj.com)
0515 GMT - The U.S. Treasury is set to uphold a regular and predictable issuance strategy, leaning on Treasury bill issuance to delay coupon [Treasury note and bond issuance] increases until at least February 2027, Morgan Stanley strategists say in a note. "Healthy market functioning and resilient demand suggest investors should focus less on headline deficits and more on issuance composition," they say. They expect the Treasury to keep coupon note and bond issuance stable until February 2027, adopting smaller increases, spread out over a longer period, they say. The Treasury's quarterly refunding announcement with borrowing estimates are scheduled for Monday and the refunding policy statement and auction details are due on Wednesday.
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