In Japan, Bank of Japan Governor Kazuo Ueda warned on Wednesday that volatility in super-long-term bond yields could spill over into short-term borrowing costs and disrupt the broader economy. With tapering talks set for next month, Ueda highlighted the BoJ’s growing attention to yield fluctuations, noting that while short- and medium-term rates typically have a greater impact in Japan, given household and corporate debt structures, sharp movements in longer-term yields could still influence the entire curve. He pledged to track market dynamics and their economic implications closely.
The Reserve Bank of New Zealand (RBNZ) lowered its official cash rate by 25 basis points to 3.25% in May 2025, marking the lowest level since August 2022 and matching expectations. This follows similar moves in April and more aggressive rate cuts in late 2024 and early 2025. While inflation remains within target, the RBNZ warned that external risks, particularly from U.S. tariffs and policy uncertainty, could weaken demand and export growth. It now projects rates will ease further, reaching 2.92% in Q4 2025 and 2.85% in Q1 2026.
U.S. Treasury yields dropped across the curve, reversing last week’s rise driven by concerns over an expanding global debt supply. The decline followed speculation that Japan may begin issuing more short-term debt. On Tuesday, both the yen and Japanese government bond yields fell sharply after reports suggested Japan’s Ministry of Finance may reduce super-long bond issuance to curb rising yields. This comes after a disappointing 20-year bond auction, the weakest in over a decade, with investor attention now turning to the upcoming 40-year bond sale. Japan’s 10-year yield edged up to around 1.50% on Wednesday.
Back in the U.S., Treasury auctions were well-received. Reuters reported that the two-year note auction cleared at a yield of 3.955%, roughly nine basis points below the prevailing market yield at the time. This week, the Treasury sold $69 billion in two-year notes, with $70 billion in five-year and $44 billion in seven-year notes scheduled for Wednesday and Thursday.
U.S. Treasury yields posted notable declines on Tuesday: the two-year yield dropped 1.5 basis points and opened Wednesday at 3.97%, while the 10-year yield slipped four basis points to 4.47%. While expectations for Fed rate cuts remain muted in the first half of the year, markets anticipate the first cut could follow the Jackson Hole Symposium in August, likely taking place in September.
In economic data, U.S. Consumer Confidence improved in May, even as Durable Goods Orders for April dropped by 6.3% month-over-month, reversing March’s strong 7.6% gain.
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