February ninth, two thousand twenty-five (250203-250209)
One. Bessent
It is the term premium, not oil prices, that is key to the decline in Treasury yields.
Bessent made another widely noticed remark on Bloomberg this week, emphasizing What Trump actually wants is lower ten-year Treasury yields, rather than trying to control the Fed's rate cuts.Bessent believes weaker oil prices can achieve this goal. During During Trump's first term, the average price of gasoline was $2.60 per gallon, and the average oil price was $60, while currently they are $3.15 and $71, respectively.
Keep a few points in mind:
1/ The breakeven price for U.S. oil producers is a breakeven price of $62, and to spur large-scale new investment, oil prices need to reach at least $84。
2/ Take a look at The Committee for a Responsible Budget; Trump's The tax-cut plan would cost roughly 5 trillion dollars , and if all of his policies were implemented, it would reach roughly 11 trillion dollars
3/ Inflation, the term premium and real rates are still driven mainly by fiscal policy rather than oil prices.The actual term premium on current 10-year Treasuries is 50bp higher than before Trump's first term. At present, the Treasury market is benefiting from flat net issuance (watch this);, once the Treasury resumes large-scale debt issuance, the market will face fresh supply pressure.
Two. Tamura and Kuroda
Betting on a stronger yen
Tamura continues to make hawkish statements, and Kuroda has also said that Japan has escaped deflation, as recent data have consistently exceeded expectations, with both wages and household spending showing strength.
The February shunto wage negotiations have now entered a critical phase, with the first round of results due before the BoJ meeting on 3 19.Last year's shunto results led the BoJ to end negative interest rates. This time, Tamura has made clear that even if the policy rate reaches 75bp, monetary conditions will still be accommodative, although the likelihood of a rate hike in 3 remains low, the market is underpricing the BoJ's decisions, This is also a contrarian trading opportunity. (It is the same kind of opportunity as when the market broadly bet on Fed rate hikes a while ago; keep an eye on it.)
Masamichi Adachi: Rengo, Japan's largest trade union with 600 ten thousand members, may push for another 5% pay increase on top of wage growth in 24 5.1%, continuing to support BoJ policy normalization.
Those interested in this view could test short positions in EURJPY, CHFJPY and USDJPY.
[Further reading]
Notes 241129 USD/JPY break 150, the next key level
Notes 240921 FX trading under the Bank of Japan decision narrative
Beyond BoJ monetary policy, yen trading actually has two other important factors:
1/ Over the past 17 years, the BoJ maintained a negative interest rate policy for an extended period. These negative rates dampened fluctuations in Japanese yields, causing️USDJPY was highly positively correlated with Treasury yields；As Japanese yields rise rapidly and the Fed enters the final stage of its rate-cutting cycle, fluctuations in short-end Treasury yields are easing. This market logic will change.Going forward, USDJPY trading will no longer simply reflect market expectations for Treasury yields; it will incorporate more two-way factors.
2/ More importantly, As of today, the Swiss franc has effectively replaced JPY as the preferred funding currency for carry trades, because The nominal carry and carry-to-vol of shorting CHF are both better than those of shorting JPY. This shift will also prompt systematic funds to reduce their JPY short positions, which is a key factor supporting yen appreciation.
The weekend is over. I hope everyone reading this has a pleasant life and a smooth week ahead!
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Note: All content in this article is for reference only, does not constitute investment advice, and is not a basis for any laws, regulations or regulatory policies. Investors should not use or rely on this information as a basis for making decisions.