A surprisingly hawkish BOJ tone, with dissents for a rate hike, bolstered its policy normalization credibility. This stemmed bearish sentiment at the long end of the JGB curve, shifting rate hike pressure to the front end and creating a bias for the curve to flatten.
The Fed is prioritizing its labor market mandate over its inflation target. This "asymmetrically dovish" policy is expected to lead to stronger growth and higher inflation, biasing inflation expectations and long-end yields upward, causing the yield curve to steepen.
Uncertainty around the 2026 Fed Chair nomination is influencing markets now. The perceived higher likelihood of dovish candidates keeps long-term policy expectations soft, putting upward pressure on the yield curve's slope independent of immediate economic data.
Despite market expectations and sensitivity around long-duration supply, the BOE unexpectedly continued sales of long-end gilts. While the size is small, this confusing signal about its response to supply-demand dynamics caused the long end of the curve to steepen.
Germany's finance agency signaled it would adjust debt issuance in response to a steepening yield curve. This sensitivity acts as a structural anchor on intermediate-term yields, creating a potential outperformance opportunity for German bonds versus US and UK debt, which face greater fiscal pressures.