Treasury yields have risen at the start of the new year but have since stalled. 1.9% yield seems to be the ceiling on the 10-year note for now.
|10y treasury yield (Bloomberg)|
Public sector entities continue to make it difficult for investors to short treasuries. The Fed's securities holdings hit a new record last week as the central bank began purchasing treasuries outright.
|Outright securities holdings by the Fed (source: FRB)|
But public sector treasury purchases are not limited to the Fed. Japan's new government wants to pull the nation out of the recession by devaluing the yen. The approach is two-fold: a massive quantitative easing program (see discussion) as well as direct market intervention. The market action by Japan's government involves selling the yen, buying dollars, and locking up the position in treasuries.
Bloomberg: - Abe’s Liberal Democratic Party pledged to consider a fund to buy foreign securities that may amount to 50 trillion yen ($558 billion) according to Nomura Securities Co. and Kazumasa Iwata, a former Bank of Japan deputy governor. JPMorgan Securities Japan Co. says the total may be double that. The purchases would further weaken a currency that has depreciated 12 percent in four months as the nation suffers through its third recession since 2008.The risk to treasuries in the longer term is that the Fed may pull the plug on asset purchases earlier than investors anticipate (see Bloomberg story). For now however the yield increases will be limited.
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