Brent crude retreated to about $96.78 as fears of a near-term U.S.-Iran conflict eased, supporting shares and Japanese government bonds while longer-dated JGBs remained under pressure from domestic policy and fiscal concerns.
Oil prices have pulled back from above $100 a barrel, with Brent crude around $96.78, easing inflation worries and supporting gains in shares and bonds. In Japan, the move helped drive buying in medium-term government bonds on the morning of the 27th, with the 10-year JGB yield around 2.76%, the 2-year yield down to 1.495% and the 5-year yield down to 2.000%. The decline in crude followed easing fears of a U.S.-Iran conflict after a New York Times report on the 25th said U.S. President Trump had decided against launching a large-scale attack on Iran for the time being. While lower energy prices offered short-term relief, investors remained cautious on Japan’s super-long bonds because of domestic monetary policy, fiscal concerns and expectations for further Bank of Japan tightening. Market pricing cited in the report suggests reduced expectations for oil to hit a new all-time high by Sept. 30, with 13.5% odds by year-end.