TOKYO: Yields on Japanese government bonds were mostly higher on Tuesday as investors remained wary of tumbling US Treasuries after last week's confirmation by Federal Reserve Chairman Ben Bernanke that the US central bank plans to cut back on its stimulus.
The 10-year yield added 1 basis point to 0.890 percent, matching a two-week high touched on Friday. The benchmark yield has been trading within the range of 0.80-0.90 percent over the past three weeks, steadying from the volatility that has buffeted trade soon after the Bank of Japan stunned financial markets with a massive stimulus programme on April 4.
"We have 10- and 20-year auction. The market is just trading off into the auction. If we get enough demand the market should be OK," said Tadashi Matsukawa, head of Japan fixed income at PineBridge Investments, referring to the finance ministry's 300 billion yen ($3 billion) liquidity enhancement auction of old 10- and 20-year JGBs.
"The 10-year sector is more affected by the US Treasuries, so people are just not putting so much money into the sector," he said.
US government bond prices bounced back on Monday, with yields falling from near two-year highs, though investors remained nervous that the Fed could soon scale back its $85 billion a month bond purchase programme.
Ten-year JGB futures eased 0.16 point to 141.99.
Matsukawa said the JGBs and US Treasuries were expected to decouple given that the Fed was likely to taper off its stimulus, while the Japanese central bank was supporting JGBs with its asset purchases. "Logically, JGBs should outperform US Treasuries," he said.
The five-year yield gained 1.5 basis points to 0.360 percent.
Both the 20- and 30-year yields slipped 0.5 basis point, to 1.770 and 1.895 percent, respectively, leading to a flattening of the long-end of the yield curve.
BoJ Deputy Governor Kikuo Iwata ruled out using its policy ammunition to deal with temporary market turbulence, signalling that it would take a long-term decline in price expectations for him to consider additional monetary easing.
But if the central bank were to boost asset purchases in the future he would favour government bonds over risk assets, given the huge size of the JGB market.
Comments
Comments are closed for this article.