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
This editorial has been prepared by Dillon Gage Metals. This document is for information and thought-provoking purposes only and does not purport to predict or forecast actual results. It is not, and should not be regarded as investment advice or as a recommendation regarding any particular security, commodity or course of action. Opinions expressed herein are current opinions as of the date appearing in this editorial only and are subject to change without notice. Reasonable people may disagree about the opinions expressed herein. In the event any of the assumptions used herein do not prove to be true, results are likely to vary substantially. All investments entail risks. There is no guarantee that investment strategies will achieve the desired results under all market conditions and each investor should evaluate its ability to invest for a long term especially during periods of a market downturn. No part of this editorial may be reproduced in any manner, in whole or in part, without the prior written permission of Dillon Gage Metals. This information is provided with the understanding that with respect to the opinions provided herein, that you will make your own independent decision with respect to any course of action in connection herewith and as to whether such course of action is appropriate or proper based on your own judgment, and that you are capable of understanding and assessing the merits of a course of action. You may not rely on the statements contained herein. Dillon Gage Metals shall not have any liability for any damages of any kind whatsoever relating to this editorial. You should consult your advisors with respect to these areas. By posting this editorial, you acknowledge, understand and accept the foregoing.