Last week the only ‘excitement’ in the bond markets was when a ‘rumor’ of Japanese changes to their quantitative easing program spooked investors sending the yield on the U.S. 10 year treasury up 6-8 basis points to the 2.98% area. Simply put if Japanese interest rates rise investors will buy more bonds in Japan and cut back on U.S. purchases.
Well the governor of the Bank of Japan has pretty much put that rumor to rest today announcing that the QE program will go on for the next year.
Of course Japan has a huge problem in that they can’t juice the economy no matter what they try—the rapidly aging population of Japan simply won’t do what the government wants–spend. Of course this is a cultural issue that has been in play for many years. So with no inflation and thus no rising wages it is pretty hard to get the economy moving.
In summary the U.S. has plenty of problems and a large move higher in longer dated bonds could prove disastrous—but the end of Japanese QE will not be a contributor for now.