Bank of Japan Boosts Bond Buying as Treasury Yields Rise

The summer bond market rally appears to be short-lived as Treasury yields are rising again, which other countries are seeing with their own respective government bonds. As such, the Bank of Japan is boosting its own bond-buying to help keep yields in check.

Bonds around the world were in the midst of a summer rally before global recession fears brought yields back up again. For Japan specifically, the expectation that the U.S. Federal Reserve will continue its rate-hiking measures to address inflation will push the dollar higher, adding another downward force on its local currency.

“The Bank of Japan said it would boost scheduled bond purchases as the intensifying Treasuries selloff puts upward pressure on global yields and weakens the yen,” a Bloomberg report said.

“The BOJ said it would buy 550 billion yen ($3.8 billion) of five-10 year bonds at its regular operations, up from 500 billion yen scheduled,” the report said further. “The move comes as Japan’s benchmark 10-year yield hit 0.245%, approaching the 0.25% upper limit of the BOJ’s tolerated trading band.”

Toeing the Line Between Duration and Yield

As central banks around the world look to tamp down inflation, the expectation is that short duration is still the option to consider when it comes to betting bond exposure. However, those willing to accept more rate risk to extract more yield may want to look at intermediate bonds.

One such option to consider is the Vanguard Intermediate-Term Treasury Index Fund ETF Shares (VGIT). The fund comes with a low 0.04% expense ratio.

VGIT straddles the line between obtaining yield and limiting duration. It’s an ideal option for bond investors who want more than what a short-duration bond ETF can offer in terms of yield, but not the rate risk that goes with stepping out further into the yield curve.

For the risk-averse, VGIT gives investors exposure to safer debt issues with Treasury notes. Per the fund description, VGIT seeks to track the performance of a market-weighted Treasury index with an intermediate-term dollar-weighted average maturity.

The fund employs an indexing investment approach designed to track the performance of the Bloomberg U.S. Treasury 3-10 Year Bond Index. This index includes fixed income securities issued by the U.S. Treasury (not including inflation-protected bonds) with maturities between three and ten years.

For more news, information, and strategy, visit the Fixed Income Channel.