Rates Strategy Weekly: Iran Peace Negotiations Impact

Mizuho assesses the JGB yield curve's reaction to potential US-Iran peace agreements and the government's bridging bonds proposal. They anticipate lower long-term rates but expect BOJ rate hike expectations to persist, keeping short-term rates high.

Key Takeaways

• 1.Progress in Iran peace negotiations and the potential reopening of the Strait of Hormuz are expected to lower energy prices and exert downward pressure on long-term global and JGB rates.
• 2.Despite the peace negotiations, Bank of Japan (BOJ) rate hike expectations for June remain high (approx. 80%) as the bank views crude oil supply recovery as a justification for returning to its tightening pace.
• 3.The Japanese government's proposal to issue 'bridging bonds' for growth investments is viewed as negative for the JGB market due to adverse impacts on near-term supply/demand dynamics.

Table of Contents

• (1) Curve implications of progress in Iran peace negotiations
• (2) Assessing rates impact of "bridging bonds" proposal
• DEVELOPMENTS THIS WEEK AND IMPLICATIONS FOR RATES OUTLOOK
• SHORT-TERM OUTLOOK (ONE WEEK – ONE MONTH)
• MEDIUM-TERM OUTLOOK (SEVERAL MONTHS – ONE YEAR)
• Risk scenarios
• (3) Yen rates relative value and investment strategies
• RELATIVE VALUE SCORE TABLES

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