US yield curve: October 23
Hello, I am Nikkei OP’s pension manager.
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Now, the theme this time isU.S. yield curve.
As of October 23, 2017, U.S. bond yields are as follows.
★ 10-year yield 2.368%
★ 02-year yield 1.568%
★ 10-year – 2-year 0.800%
The yield on the 10-year and 2-year, which had narrowed to 0.752% on October 17, has been rising slightly.
However, it is far from the 1% level observed in May.
If you overlay the yield spread of the 10-year vs 2-year (red, on the right axis) with the USD/JPY rate (blue, on the left axis), it looks like the following.
Source: Bloomberg, created by the administrator
As a tendency, when the yield spread narrows, the yen strengthens, and when the yield spread widens, the yen weakens.
Recently, the yields on 10-year and 2-year bonds have also risen, but not to the same extent as the USD/JPY rate.
Considering how limited the steepening (rapid widening) of the 10-year vs 2-year yield is, I believe the yen’s weakening versus the dollar will also be limited.
Therefore, for the Nikkei average to continue rising, an increase in forecasted EPS is needed; if the benefit of yen depreciation cannot be enjoyed, improvements in productivity and cost reductions will be required to expand earnings.
Note) The above is my personal view and is intended solely to improve financial literacy. Therefore, it is not created for investment solicitation purposes. The final investment decisions must be made at one's own risk.
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