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BOJ Flags Smallest Long Bond Buys Since ’14 to Control Curve

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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.

Too Low?

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.

Uncharted Territory

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.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Crude Oil

South Africa’s iGas, PetroSA and Strategic Fuel Fund Merge to Create South African National Petroleum Company

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The South African Department of Mineral Resources and Energy (DMRE) has announced the merger of Central Energy Fund (CEF) subsidiaries iGas, PetroSA and the Strategic Fuel Fund (SFF).

The merger will be effective from 1 April 2021 and the new company will be called the South African National Petroleum Company.

The merger, driven by the pursuit of implementing a new company that has a streamlined operating model via the development of a shared services system and a common information platform, comes a few months after cabinet approval and the confirmation that PetroSA had incurred losses of R20 billion since 2014.

Additional factors which prompted the move included the determination to strengthen PetroSA which had not had a permanent CEO in five years prior to the appointment of CEO Ishmael Poolo last and, had become majorly ungainful since its failure to secure gas for the gas-to-liquids refinery project in Mossel Bay.

While the merger deadline has been set, the portfolio committee expressed reservations to the department’s likelihood of meeting the deadline, considering the existing legislative regime, pending issues raised in the SFF and PetroSA forensic reports, as well as PetroSA’s current insolvency and liquidity challenges, the official press statement on the briefing revealed.

“South Africa’s energy sector is entering a new dawn,” said NJ Ayuk, Executive Chairman of the African Energy Chamber. “With gas discoveries off the coast and the announcement of the REIPPP programme bid window 5 and 6 on the horizon, now is the most opportune time for the merger of the CEF subsidiaries. Of course, it is not an easy task and delays may be anticipated but, this move signals a real change towards a meaningful strategy that will not only be beneficial to the DMRE but to potential investors and local development as well.”

The African Energy Chamber welcomes this move and acknowledges that this is yet another step supporting the country’s determination to restarting the engines of sustainable growth and the transformation of energy policy and infrastructure.

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Crude Oil Hits $71.34 After Saudi Largest Oil Facilities Were Attacked

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Brent Crude Oil Rises to $71.34 Following Missile Attack on Saudi Largest Oil Facilities

Brent crude, against which Nigerian oil is priced, jumped to $71.34 a barrel on Monday during the Asian trading session following a report that Saudi Arabia’s largest oil facilities were attacked by missiles and drones fired on Sunday by Houthi military in Yemen.

On Monday, the Saudi energy ministry said one of the world’s largest offshore oil loading facilities at Ras Tanura was attacked and a ballistic missile targeted Saudi Aramco facilities.

One of the petroleum tank areas at the Ras Tanura Port in the Eastern Region, one of the largest oil ports in the world, was attacked this morning by a drone, coming from the sea,” the ministry said in a statement released by the official Saudi Press Agency.

It also stated that shrapnel from a ballistic missile dropped near Aramco’s residential compound in Eastern Dhahran.

Such acts of sabotage do not only target the Kingdom of Saudi Arabia, but also the security and stability of energy supplies to the world, and therefore, the global economy,” a ministry spokesman said in a statement on state media.

Oil price surged because the market interpreted the occurrence as supply sabotage given Saudi is the largest OPEC producer. A decline in supply is positive for the oil industry.

However, Brent crude oil pulled back to $69.49 per barrel at 12:34 pm Nigerian time because of the $1.9 trillion stimulus packed passed in the U.S.

Market experts are projecting that the stimulus will boost the United States economy and support U.S crude oil producers in the near-term, this they expect to boost crude oil production from share and disrupt OPEC strategy.

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A Loud Blast Heard in Dhahran, Saudi Arabia’s Largest Crude Oil Production Site

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Loud Blast Heard in Dhahran, Saudi Arabia’s Largest Crude Oil Production Site

Two residents from the eastern city of Dhahran, Saudi Arabia, on Sunday said they heard a loud blast, but they are yet to know the cause, according to a Reuters report.

Saudi’s Eastern province is home to the kingdom’s largest crude oil production and export facilities of Saudi Aramco.

A blast in any of the facilities in that region could hurt global oil supplies and bolster oil prices above $70 per barrel in the first half of the year.

One of the residents said the explosion took place around 8:30 pm Saudi time while the other resident claimed the time was around 8:00 pm.

However, Saudi authorities are yet to confirm or respond to the story.

 

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