TOKYO: Japan's government bond prices fell on Thursday, with the 10-year yield hitting a two-month high, after stronger-than-expected US industrial production data eased concerns over the health of the world's largest economy.
The "risk-on" move sent the yen to a one-month low against the dollar and the Tokyo's Nikkei share average 1.9 percent higher to close above the 9,000-mark for the first time since early July.
Yields on benchmark 10-year bonds, after hitting a nine-year trough in late July, have been trending up in the past two weeks on the back of some better-than-expected US economic data and expectations that the European Central Bank would launch further measures to tackle the region's debt crisis.
The 10-year yield added 4.5 basis points on Thursday to a two-month high of 0.860 percent. The yield has risen 14 basis points since late July.
"It is an interim correction. People were expecting too much policy intervention (from global central banks). They were pricing in excessively. They are currently taking those positions off the table," said Shogo Fujita, chief Japan bond strategist at Bank of America Merrill Lynch.
"How far can it go? I would say about 0.90 to 0.95 percent," he said, adding that the euro zone debt crisis remained an issue.
Nomura Securities expected 10-year yield to rise to between 0.90 and 1.0 percent by the end of September.
"It's very tempting for investors to buy right now because you haven't had a correction for a very long time," said Neale Vincent, strategist at Nomura Securities.
"We think there is more to go and are trying to be patient."
Ten-year JGB futures fell 46 ticks to 143.27 to their lowest level since May 29. They also suffered their worst one-day fall in five months.
Trading volume on the 10-year futures hit a two-month high, with 47,163 contracts changing hands, up sharply from Wednesday's 34,204 and last week's average of 31,510.
Yields on 20-year debt rose 4 basis points to 1.685 percent, also to a two-month high, while those on the 30-year bonds were up 3 basis points to 1.880 percent.
"It has the chance to correct even further going into September as Japan approaches the semi-annual year-end. If you look at banks and life insurers' portfolios, they are not doing thrillingly right now," BofA Merrill Lynch's Fujita said.
"Equities are down for the fiscal year. Their fixed-income portfolio, which was doing well about three weeks ago, has pretty much turned. There are some forced to adjust portfolio and book profits before September. That accelerates the current sell-off. But I don't foresee the bull trend changing anytime soon."
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