Лев Бергман🔴✨(💙,🧡) 🛡️ 🌘🌊📘pre🐐✨🔴

Although the basis trade is back in focus, due to the anticipated BoJ rate hike and rising Japanese CPI, I will continue betting on JPY in 2025 after this Q2 modest bounce following the USD sell-off. However, we should remain cautious when examining the Japanese yield curve itself. I’ll explain my logic below using JGB numbers! The bid to cover ratio is approximately 2.20 for 40y bonds on a ~$3.5 billion volume from the Ministry of Finance. The last time I saw this level was in July (you know what happened next, but this isn’t the same case). Note: poor demand for long term. This partially triggered further sell-offs in 30y and 20y JGB. As a result, the yield curve is moving intriguingly on the longer end. Note: no demand for long-duration JPY bonds. Why is this so interesting? Because it also drives a lack of demand for UST (just my View). What should come next according to my logic? The BoJ will likely take maturing bonds and redirect those flows into long-term debt instead of short-term debt to boost bid to cover ratios and demand for 20y+. Such actions could inversely rebalance the yield curve and put pressure on short-term yields (bounce on poor demand here). As short-term Japanese yields rise and U.S. yields expected to fall, the yield spread becomes critical. The 2y spread takes center stage, driving a historical correlation with a USD/JPY downtrend (less engagement in carry trades). Yen demand surges, and the yen strengthens below 140. Timing for this? H2 2025. I haven’t spent hours analyzing the Japanese refinancing plan, but it should unfold a few months from now. The most important question is: what comes first before this scenario? What could happen in the interim? A bigger USD/JPY bounce before the drop, driven by higher carry interest from retail traders who ignore the BoJ’s potential priorities in the JGB curve. I saw this last year when I was shorting USD/JPY above 160. Now, with proper BoJ moves to stimulate long-term demand, the potential risk lies in the short-term spread! Watch out and react! graph: World Government Bonds by Nikita Chemodanov