Market 03/19: Successful 20Y T-bond auction, Japan raises interest rates for the first time in 17 years

Successful auction of $13 billion 20Y US Treasury bonds

• High Yield level: 4.542% (market yield: 4.562% |previous session's High Yield: 4.595%) => stop-through 2bps

  • Of which 94.02 % successful bidders required this yield (previous session: 41.13%)

• Bid-to-Cover ratio: 2.79 (higher than previous session 2.5)

• Allocation ratio: strong increase in indirect bidder demand

  • Indirect bidders: 73.49% (previous session: 59.08%)

  • Dealers: 9.35% (previous session: 21.21%)

Japan: BOJ raises interest rates for the first time in 17 years, ending nearly a decade of negative rates

BOJ March 2024 meeting results:

• BOJ officially raises short-term interest rate from -0.1% to the range 0% to +0.1%

• BOJ will not implement Yield Curve Control (YCC) but will still buy Japanese Government Bonds in “almost the same quantities as before”.

  • => Still QE: this move may be because BOJ wants to curb sudden increases in Japanese bond yields (reducing public debt pressure).

• Ending purchases of stocks, ETFs, and REITs.

• BOJ has no plans to normalize its balance sheet (reduce its massive current balance sheet).

Viet Hustler analysis:

The short-term rate hike could put pressure on Japan's public debt (currently at ~252% GDP).

• While BOJ continues QE (bond purchases): this will cause JPY to depreciate in the short term - at least until BOJ fully stops QE.

Detailed analysis article: BOJ's pivot speed after Shunto - impact on global financial markets

Markets reacted quite positively by pricing in multiple BOJ rate hikes this year.

• However, the outcome will also depend on macro data in the coming months for BOJ to ensure sustainable inflation and effective economic growth.

• Note: 2 key April data points are the “Tankan” business sentiment survey (04/01) and quarterly reports from commercial banks.

Market news (US): Stocks dip slightly as market cautious ahead of Fed meeting

• Supermicro stock drops ~10% after announcing plan to issue additional 2 million shares, raising ~$2 billion.

• Genesis agrees to pay $21 million fine, closing SEC lawsuit, after 1 year charged with offering unregistered securities through lending program.

• Treasury ETF ($TLT) records 8th straight day decline, sees $2 billion outflow

Housing starts and building permits surge in February

• February housing starts +10.7% M/M, above estimate +8.2% and previous -12.3%

• Building permits +1.9% M/M, above estimate +0.5% and previous -0.3%

• New home starts surge but building permits show little sign of improvement

• Number of homes under construction remains high, supporting jobs in the construction sector

• Number of homes completed surges but may be due to seasonal factors

Other news

1. Wage growth for the lowest-income workers continues to decline rapidly (Atlanta Fed)

2. China accuses Evergrande of fraud totaling 78 billion USD.

   => becoming the largest financial fraud in history, far exceeding Enron, WorldCom, FTX, and even surpassing Bernie Madoff's 68 billion USD Ponzi scheme.

3. Unilever ceases ice cream business (Magnum and Ben & Jerry's), cuts 7,500 jobs to save costs