JGBs volatile, futures post biggest jump since BOJ’s yield curve control

Madiha Shakeel December 19, 2018

TOKYO: Japanese government bond (JGB) prices ended mixed in highly volatile trading on Wednesday, with the benchmark futures posting the biggest daily range since the Bank of Japan adopted a policy to control the 10-year bond yield.

The benchmark 10-year JGB futures closed 0.07 point higher at 152.39 after having risen as much as 0.52 point at one point, the biggest gain since the central bank started the yield curve control policy.

The price hit its highest since July 2016, extending the rally since October propelled by growing concerns about the health of the global economy.

Buying in futures accelerated after the Bank of Japan kept the amount of its buying in five- to 10-year bonds steady, despite speculation that it could reduce buying following recent falls in JGB yields.

But the market reversed course later, as buyers of futures closed their positions after Japan Securities Clearing Corp, a clearing house, issued a margin call.

Thin trading conditions near the year-end made trading more volatile. Under the BOJ’s yield curve control, JGB futures prices have typically moved less than 0.10 point a day on average.

The yield on benchmark 10-year JGBs was also volatile, dropping at one point to 0.010 percent, its lowest since September last year, before rising again. The yield last stood 1 basis point higher on the day at 0.035 percent.

The five-year yield dropped to as low as minus 0.165 percent, its lowest since April 2017, before pulling up again. It was last half a basis point higher on the day at minus 0.145 percent.

Japanese bonds initially took their cue from a rally in U.S. Treasuries.

The yield on 10-year U.S. Treasuries dropped to a near-seven month low of 2.799 percent as a plunge in oil prices increased worries about a global slowdown and fanned speculation the U.S. Federal Reserve might be done with tightening after its policy meeting later in the day.

Copyright Reuters, 2018

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