TOKYO: Japanese government bond prices fell on Thursday, sending the 10-year yields to a two-month high, as falls in global bond prices, the yen's fall and a rise in Japanese share prices pushed the market out of its months-long doldrums.
Some regional banks were also said to have sold cash bonds, reducing their holdings ahead of their half-year book-closing at the end of September.
The 10-year JGB futures price fell 0.23 point to 145.42 , with trading volume hitting 50,200 lots, the fourth largest amount this year. Speculative accounts were selling the futures as bond prices have fallen globally on expectations that the US Federal Reserve may raise interest rates earlier and faster than previously thought.
The 10-year yield rose to as high as 0.570 percent , its highest level since early July. It last traded at 0.565 percent, 2.5 basis points above the previous close. The 20-year rose 3.5 basis points to 1.385 percent while the 30-year yield rose 2.0 basis points to 1.705 percent.
Although JGB yields had been constantly falling in the past few months thanks to the Bank of Japan's massive bond buying, the big rise in US bond yields this week lifted the dollar against the yen, helping to boost Japan's Nikkei share average to 7 1/2-month highs and undermining the case for buying low-yielding JGBs.
Still, market players see limited downside as they expect the BOJ to keep gobbling up JGBs. The central bank currently buys an amount equal to 70 percent of the government's debt issues. "As long as the BOJ keeps buying JGBs, yields can rise only so much. And banks are still flush with cash to work with as deposits continue to grow while loans don't," said a trader at a Japanese bank.
On the other hand, investors continued to snap up short-term bills, pushing their yields further into the negative territory due to strong demand ahead of Japanese half-year book-closing Sept. 30.
Investors typically reduce risk assets and hold on to cash and short-term assets such as government bills ahead of book-closings. The six-month discount bill yield fell 1.1 basis point to minus 0.015 percent, the lowest record ever.
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