PNC: Japan is unlikely to sell mid-term U.S. Treasuries for intervention, and the impact on long-end yields is limited.

Isfar Munir, head of interest rate research at PNC, stated in a report that if the Japanese Ministry of Finance needs to raise funds for market intervention in the future, it is unlikely to sell even medium-term U.S. Treasury bonds, thus the impact on long-term U.S. Treasury yields is expected to be limited. Despite signs of yen intervention last week coinciding with a sell-off of 30-year U.S. Treasury bonds, the negative value of the 30-year swap spread narrowed during the same period. If the movement of long-term U.S. Treasury bonds is reflecting market intervention, the negative value of the swap spread should further widen. If subsequent interventions do have an impact on longer-term yields, it may be transmitted through some "market perception channel"; however, this may require the market to interpret the intervention as a signal of reduced demand for U.S. Treasury bonds over a longer period in the future.