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Fixed Income Commentary

Potential issues in using 2-year-forward 1-year OIS rates to project 10-year JGB yield

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Potential issues in using 2-year-forward 1-year OIS rates to project 10-year JGB yield

Key points

  • In the past, 2-year-forward 1-year OIS rates (reflecting expectations of the terminal rate) have been useful in forecasting 10-year JGB yield

  • However, this may change as expectations of terminal rate approach neutral rate of interest

  • We project that wide 2s10s JGB spreads will tighten along with gradual rate hikes

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