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A look at the day ahead in U.S. and global markets

By Mike Dolan, Editor-At-Large, Financial Industry and Financial Markets

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Plummeting bond yields and oil prices clawed back some of the week’s dramatic falls on Thursday, while a burst of speculation about a Bank of Japan policy tightening this month cut across the interest rate optimism and catapulted the yen higher.

The size and slightly erratic nature of this week’s macro market moves may speak a little to yearend markets both squaring off books and jockeying for position for 2024.

But a stream of softer labor market and inflation news – not least an oil price plunge to 6-month lows on booming U.S. crude supplies – has been relentlessly positive for bonds along with clear signs of central bank policy shifts going into next year.

A street sign for Wall Street hangs in front of the New York Stock Exchange May 8, 2013. REUTERS/Lucas Jackson

Too far, too fast? Ten-year Treasury yields plumbed three months lows near 4.1% on Wednesday and money markets are pricing well over 100 basis points of central bank rate cuts next year.

Ten-year U.S. yields recaptured about 6bp of the 25bp drop over the past week early on Thursday – although ten-year German bund yields continued to fall to their lowest since May.

Cutting across the global rates euphoria, however, were Bank of Japan comments that spurred markets into upping chances of another tightening of monetary policy there as soon as this month. That saw 10-year Japanese government bond yields jump more than 10bps and the yen jump almost 2% to its best level since September 1.

BOJ Governor Kazuo Ueda said on Thursday the central bank – the lone holdout over the past two years of G7 tightening – has several options on which interest rates to target once it pulls short-term borrowing costs out of negative territory.

The five-year JGB yield leapt 10.5 bps to 0.34% – the biggest increase in a single day since April 2013.