Following on with our last note’s comments on JGBs, we would like to point out where the 10yr outright is trading:
Assuming this does not breakout, we maintain our view that despite the change in policy from the BOJ; Japanese yields will have a challenging time raising much further, for one should consider the unfavourable effect of the value of these bonds being marked down has on global liquidity via the Japanese banks lending to mainland China. Also, updating a chart we posted a while ago, our short CNY is very much onside and we’d guess an increase in Japanese rates would be even better as Chinese banks scramble for USD liquidity.
We maintain the short as we wait for DXY to break out this year’s high of 105.60
On the rates side our duration exposure has been a drag on our performance, however the portfolio construction is decent enough and this has been more than mitigated by other trades. We have enough risk budget to hold the positions here. SOFR implied vol remains in the lower level of the year and the near term forward spread (while 100 bps steeper from the previous low) remains well inverted.
On the equities side we took profits on half our position in fertilisers and we are seriously considering a tactical underweight in energy, however, structurally we like the oil trade. We await for a breakout of XLE relative to the clean energy index:
Our book is already more long treasuries than gold so the following doesn’t require any changes in our portfolio but we’d like to bring to attention that the gold/treasuries ratio is looking rather heavy up here. It may be a good idea to favour the denominator in this chart:
Finally, we keep an open mind and listen to those in the higher for longer camp; indeed, it would be rather interesting to see, for the first time since the record began, fed funds going higher after the (marked by vertical lines here) inversion of the ff-5y5y:
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Where can we find the Chinese required reserve deposit ratio for Major Banks or better the ticker symbol on tradingview assuming thas one