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ETF Prospects Improving (And Not Just for Bitcoin)

Aug 4, 2023 • 5 Min Read
Author
Sean Farrell
Sean Farrell AC

Yield Curve Steepens

Over the past week, a flurry of news has led to a significant steepening in the yield curve. The key events:

  • Last Friday, the Bank of Japan (BOJ) signaled a more lenient approach to their Yield Curve Control (YCC) policy. While their target 10-year rate remains at 50 basis points (bps), they are now willing to let it drift as high as 1%. This announcement sparked fears that it could trigger a wholesale 50 bps increase in global 10-year rates. Additionally, the BOJ's decision means there will be more supply of Japanese Government Bonds (JGBs) in the market, as they are reducing the amount of debt they will purchase. This might have second-order effects on the demand for US Treasuries (USTs).
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On Tuesday, Fitch Ratings downgraded the United States' long-term foreign currency issuer default rating from AAA to AA+ due to concerns about anticipated fiscal deterioration, erosion of governance, and a growing general debt burden over the next three years. Finally, on Wednesday, the US Treasury announced plans to ramp up the issuance of longer-dated securities in response to the soaring deficit and high interest rates. This move was clearly a signal to the market that rates were expected to rise higher. We think this was the most important contribut...

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