Intriguing RV graphs: Considering room for rising yields, steeper curve due to "Basic Policy shock"
Key points
The current "Basic Policy shock" not on par with "Truss shock"; in latter case, concerns over fiscal expansion escalated into liquidity crisis, leading to a disorderly rise in yields
Currently no signs of liquidity crisis in the JGB market; in that case, we think it worthwhile to consider room for rise in yields
Based on the upper bound of the neutral interest rate and Domar condition, 10yr JGB yield of 3% (or more) could serve as guideline; until then, we see scope for yield curve to steepen