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Are US-Iran talks making progress, are they deadlocked, or have they broken down?
Long-term and super-long-term JGB yield scenario for April 13 - 17
Action in the JGB market during the week of April 13 would depend on the outcome of the US-Iran negotiations. The first direct talks between the two countries are scheduled to be held on April 11 in Islamabad, the capital of Pakistan (see “Key events” section . In the event of growing expectations for progress in the peace negotiations, we expect an easing of global inflation concerns and a decline in long- and super-long-term JGB yields. However, there is a risk that the entire yield curve will shift higher if the talks break down. The longer the de facto closure of the Strait of Hormuz drags on, the higher the probability of upside risks to prices. Substantial price increases for upstream petroleum-related products are already being reported as a result of rising naphtha prices, and we expect this will eventually have an impact on downstream prices as well. The 2-year-forward 1-month OIS rate has recently resumed rising as the yen has weakened, putting upward pressure on the 10-year JGB yield accommodation” and carry out another rate hike in view of the upside risks to prices (i.e., the risk of “falling behind the curve”). Given the difficulty of pricing in either outcome, more investors seem to be taking a wait-and-see stance, and the yield curve appears to be working its way gradually higher..
In light of the uncertain outlook for the Middle East and the pick-up in global inflation concerns, we have raised the top end of our forecast range for super-long yields in the April-June quarter from 3.25% to 3.45% for the 20-year JGB yield, from 3.65% to 3.85% for the 30-year yield, and from 3.85% to 4.10% for the 40-year yield (all on a simple interest basis). Our end-of-period point forecasts are unchanged.