Investors hoping the Bank of Japan would provide clues on how it plans to control yields in a monthly statement Friday were not disappointed.
The central bank reduced its target for purchases of debt maturing in more than 10 years to a range of about 200 billion to 400 billion yen ($2 billion to $4 billion) per auction in October from about 300 billion to 400 billion yen for the previous month. Based on its plan to buy 410 billion yen at the first auction next month, that would be the least since expanding asset purchases two years ago, based on calculations that assume the same purchase amount at each operation.
“The announcement shows the BOJ’s intention to steepen the yield curve,” said Kazuhiko Ogata, chief Japan economist at Credit Agricole SA in Tokyo. “The long end of the curve may see some selling pressure, but the impact on JGBs and the yen will probably be limited because the numbers came in within the expected range.”
The BOJ said in its Sept. 21 policy statement it is now targeting the yield curve, but only specified two points: the deposit rate at minus 0.1 percent and the 10-year yield “around zero percent.” That shone a spotlight on Friday evening’s statement in the hope that more on the desired curve shape could be gleaned from the central bank’s actual purchases.
The bank also lowered the target for five- to 10-year securities to 290 billion to 530 billion yen, from 300 billion to 600 billion previously. It left the frequency of its operations at 8 to 10 times per month, with an overall target to buy 8 trillion to 12 trillion yen.
The BOJ gave a clue to its intentions earlier Friday, when it bought 410 billion yen of five- to 10-year securities, instead of the 430 billion yen indicated in its statement for September. It was the first time in six months the central bank had reduced buying before releasing its monthly plan, and spurred speculation the benchmark yield might be getting too low for Governor Haruhiko Kuroda’s comfort.
“The BOJ may have reduced purchases in order to stem the decline in 10-year yields, which were approaching minus 0.1 percent,” Hiroki Tsuji, a Tokyo-based market analyst at Mizuho Securities Co. said before the announcement. “It’s likely to strengthen the market’s perception that minus 0.1 percent is the lower bound of what the BOJ will tolerate.”
The benchmark 10-year yield fell as low as minus 0.09 percent this week for the first time in a month. It was at minus 0.085 percent when markets closed on Friday in Tokyo, unchanged since the release of the statement. The yield rose above zero for the first time since March on Sept. 21.
The gap between yields on two- and 30-year debt — a measure of the steepness of the curve — is near the same level as it was at the time of the policy meeting at around 72 1/2 basis points, after compressing to as little as 66 basis points in the interim.
Kuroda’s targets for the yield curve take Japan’s monetary policy further into uncharted territory as he struggles to stoke inflation. It also spurred calls for clarity on how he plans to implement the changes, as well as prompting speculation the BOJ may be laying the groundwork for a reduction in its 80 trillion yen a year in bond purchases.
The bank said last week it would adjust the volume of its asset buying as necessary in the short term to control bond yields, while keeping them at about 80 trillion yen annually over the long term. The central bank has had a target to buy 8 trillion yen to 12 trillion yen in government bonds from the market each month. The BOJ owned 36 percent of outstanding JGBs at the end of June.
A summary of opinions from the central bank’s meeting released Friday morning in Tokyo showed policy makers don’t intend to peg 10-year yields at zero for long in the future, and they will examine an appropriate shape for the yield curve at each gathering.
“Nobody knows what the ideal shape for the yield curve is,” said Makoto Suzuki, senior bond strategist at Okasan Securities Group Inc. in Tokyo.
Oil Holds Near Highest Since 2018 With Global Markets Tightening
Oil held steady near the highest close since 2018, with the global energy crunch set to increase demand for crude as stockpiles fall from the U.S. to China.
Futures in London headed for a third weekly gain. Global onshore crude stocks sank by almost 21 million barrels last week, led by China, according to data analytics firm Kayrros, while U.S. inventories are near a three-year low. The surge in natural gas prices is expected to force some consumers to switch to oil, tightening the market further ahead of the northern hemisphere winter.
China on Friday sold oil to Hengli Petrochemical Co. and a unit of PetroChina Co. in the first auction of crude from its strategic reserves said traders with the knowledge of the matter. Grades sold included Oman, Upper Zakum and Forties.
Oil has rallied recently after a period of Covid-induced demand uncertainty, with some of the world’s largest traders and banks predicting prices may climb further amid the energy crisis. Global crude consumption could rise by an additional 370,000 barrels a day if natural gas costs stay high, according to the Organization of Petroleum Exporting Countries.
“Underpinning the latest bout of price strength is a tightening supply backdrop,” said Stephen Brennock, an analyst at PVM Oil Associates Ltd.
Various underlying oil market gauges are also pointing to a strengthening market. The key spread between Brent futures for December and a year later is near $7, the strongest since 2019. That’s a sign traders are positive about the market outlook.
At the same time, the premium options traders are paying for bearish put options is the smallest since January 2020, another indication that traders are less concerned about a pullback in prices.
Unlocking Investments into Africa’s Renewable Energy Market
The African Energy Guarantee Facility (AEGF) is launching a virtual roadshow of free webinars allowing a deeper understanding of risk issues for renewable energy projects on the continent, and conversations around risk mitigation solutions. The first webinar will take place on Thursday, 23 September from 14:30-16:00 hrs. EAT.
The session will be oriented on how to get more energy projects from the drawing board to the grid. While the energy demand in African economies is expected to nearly double by 2040, and although the potential for renewable energy is 1,000 times larger than the demand, only 2GW out of almost 180GW of this new renewable power were added on the African continent.
Clearly not good enough! To improve the situation within the next two decades, new solutions need to be implemented urgently. De-risking and promoting private sector investments will play a crucial part of it.
In this 90-min interactive session, AEGF partners: the European Investment Bank (EIB), KfW Development Bank, Munich Re and the African Trade Insurance Agency (ATI) will share their experience and provide valuable insights on how they were able to come together and design practical solutions for investors and financiers of green energy projects in Africa aligned with SDG7 objectives.
Across Africa, the complexity of renewable energy projects and their long tenors hold back crucial energy investment. Tailored to the specific needs and risk profiles of sustainable energy projects, AEGF will tackle the investment challenge by providing underwriting expertise and capacity tailored to market needs.
The AEGF will significantly boost private investment in sustainable energy projects, both expanding access to clean energy and contribute to achieving UN Sustainable Development Goals. The scheme supports new private sector investment in eligible renewable energy, energy efficiency and energy access projects in sub-Saharan Africa.
Shell Signs Agreement To Sell Permian Interest For $9.5B to ConocoPhillips
Shell Enterprises LLC, a subsidiary of Royal Dutch Shell plc, has reached an agreement for the sale of its Permian business to ConocoPhillips, a leading shales developer in the basin, for $9.5 billion in cash. The transaction will transfer all of Shell’s interest in the Permian to ConocoPhillips, subject to regulatory approvals.
“After reviewing multiple strategies and portfolio options for our Permian assets, this transaction with ConocoPhillips emerged as a very compelling value proposition,” said Wael Sawan, Upstream Director. “This decision once again reflects our focus on value over volumes as well as disciplined stewardship of capital. This transaction, made possible by the Permian team’s outstanding operational performance, provides excellent value to our shareholders through accelerating cash delivery and additional distributions.”
Shell’s Upstream business plays a critical role in the Powering Progress strategy through a more focused, competitive and resilient portfolio that provides the energy the world needs today whilst funding shareholder distributions as well as the energy transition.
The cash proceeds from this transaction will be used to fund $7 billion in additional shareholder distributions after closing, with the remainder used for further strengthening of the balance sheet. These distributions will be in addition to our shareholder distributions in the range of 20-30 percent of cash flow from operations. The effective date of the transaction is July 1, 2021 with closing expected in Q4 2021.
Shell has been providing energy to U.S. customers for more than 100 years and plans to remain an energy leader in the country for decades to come.
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