Meritz Securities said on the 26th that the appointment of a new U.S. Federal Reserve (Fed) chair is more important than the results of the January Federal Open Market Committee (FOMC) meeting scheduled for Jan. 27-28 local time.
Yields on 10-year and 30-year U.S. Treasurys recently topped 4.3% and 4.9%, respectively, highlighting mounting tension in the global bond market. Fears of selling in Treasurys due to President Donald Trump sparking a dispute over Greenland and a surge in yields on worries about Japan's expanded fiscal policy shocked the global bond market. Since then, the "TACO (Trump Always Chickens Out)" trade and damage control by Japan's Ministry of Finance have eased the strain in global bonds.
Yoon Yeo-sam, a researcher at Meritz Securities, said, "With no standout issues at the January FOMC and with the confrontation between President Trump and Chair Jerome Powell, expectations are strong that monetary policy will remain in its current neutral stance."
Yoon said attention is turning more to BlackRock's Chief Investment Officer Rick Rieder, who has rapidly emerged as a candidate for Fed chair, than to the meeting itself. He said, "If Rick Rieder is appointed Fed chair, he would be viewed as a relatively reasonable pick."
He also said there are takeaways for the vulnerable domestic bond market despite the recent spike in Japanese yields. Yoon said, "Korea and Japan's financial markets do not have large, direct stock and bond flows, but as export-driven economies, their exchange rates are correlated."
He added, "During last week's spike in Japanese yields, noise over a domestic supplementary budget was added, and we confirmed heightened sensitivity in the domestic bond market. With no buying catalysts, the market remains sensitive to negatives."
Investors do not see a domestic rate hike as likely, but they are noting the lack of immediate catalysts to buy bonds.
Yoon said, "Even early-year carry-seeking credit investing is wobbling, which is a burden," adding, "We view the current 3-year Treasury at around 3.1% and the 10-year Treasury at around 3.6% as a buy zone within an 'overshooting' phase, and we advise not rushing to buy until supply pressures (productive finance) ease."