SINGAPORE/TOKYO - One of the last anchors for global bond markets was being hauled in on Tuesday, as the Bank of Japan announced a new degree of tolerance for rising government bond yields and signalled an end to its seven-year straightjacket on long-term rates.
The BOJ's vow to buy the 10-year bond at a yield of 1% every day is now gone, replaced with a vaguer promise to buy taking account "market rates and other factors," which was taken by markets as a green light for ultra-low yields to rise. Japanese authorities will no longer be leaning so forcefully against the rising tide of global interest rates.
The gap between 10-year Japanese yields and their U.S. equivalent also hit over 400 basis points in October - its widest for more than 22 years, which has driven the yen close to three-decade lows. BOJ Governor Kazuo Ueda said he has no pre-set ideas on the sequence of an end to yield curve control or negative rates, and that he doesn't expect the 10-year yield to sharply exceed 1% on a sustained basis. It didn't on Tuesday.
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