The price of gold getting a boost this morning after the Bank of Japan announced they will be introducing a zero interest rate target for ten-year government bonds.
Japan’s central bank also announced they are keeping rates unchanged.
In essence, they will be deepening the bond yield curve by going from longer term bonds to buying short term JGBs. They will also cut the deposit rate deeper into negative territory from 10-20 basis points.
This decision has not come without criticism because this creates more problems for their banks that borrow at short term rates and tend to lend at long term rates. This in my opinion will only discourage banks from making new loans. This decision also can have an impact on the economy as folks question the sustainability of their financial system.
As the BOJ decision was announced, our ten-year government bonds fell a bit to yield 1.691 percent after closing yesterday at 1.687 percent. Our thirty-year treasury bonds fell to yield 2.438 after closing at 2.429 percent. Let me remind my readers that bond yields move the opposite of prices.
The FED will announce its decision at 2 pm Eastern time. Then at 2:30, Fed chairwomen Janet Yellen will brief the media. The consensus is for the Fed to leave rates unchanged until December. In the event they raise rates today, (only a 15 percent chance according to the CME FED WATCH TOOL) it would be a surprise to the market especially after what transpired in Japan overnight.
In my opinion, in the event they do raise rates today (that will be a very bold move by the voting Fed presidents) I expect our markets to get slammed. They better have some compelling data to back that decision up, which most believe, would be a very bad decision on their part to raise rates in a world where negative interest rates are becoming the norm.
Author Name: Walter Pehowich
Walter Pehowich is the executive vice president of precious metals investment services for Dillon Gage with over 38 years of experience in precious metals investment services. His career began in 1977 at Bache (which evolved to Prudential-Bache Securities and then Jefferies Investment Bank). While at Jefferies, he served as senior vice president with oversight of investment grade precious metal products. Pehowich holds a National Futures Association (NFA) Series 3 license, authorizing him to advise and sell alternative investments in commodities and futures markets.