TOKYO: Japanese government bond prices fell on Thursday, with the benchmark 10-year JGB yield matching this week's 10-month high in the wake of a rise in U.S. Treasury yields after the Federal Reserve projected a greater number of interest rate hikes next year.
The benchmark 10-year yield added 2.5 basis points (bps) to 0.080 percent, while 10-year JGB futures finished down 0.25 point at 149.72.
The Federal Reserve's 25 basis-point interest rate increase on Wednesday was widely anticipated by financial markets. After the Fed signalled three hikes instead of two in 2017, the yield on 10-year Treasuries rose as high as 2.587 percent, its highest level since September 2014.
"A sharp rise in U.S. Treasuries yields put renewed upward pressure on the JGB curve," said Naomi Muguruma, senior strategist, Mitsubishi UFJ Morgan Stanley Securities.
"I think market participants are sceptical about the BOJ's commitment to yield curve control," Muguruma said. "Domestic investors are staying on the sidelines to see if U.S. Treasury yields continue to rise."
Demand at an auction of 20-year JGBs was relatively strong, she said, as many investors expect the Bank of Japan to offer to buy superlong bonds in its asset purchase operations on Friday to keep rising yields in check, as it did on Wednesday.
Under its current monetary policy framework of "yield curve control," the BOJ aims to guide the 10-year JGB yield to around zero percent.
A BOJ official on Wednesday said that its increased purchase of superlong bonds was aimed at steering the JGB yield curve toward what the central bank deems appropriate, and that the move took into account recent rapid yield rises and the possibility of further volatility.
On Thursday, the Ministry of Finance offered 1.1 trillion yen ($9.37 billion) of 20-year JGBs with a 0.6 percent coupon, and 59.4576 percent of the bids were accepted at the lowest price of 99.00.
The sale drew bids 3.35 times the amount offered, up from the previous sale's bid-to-cover ratio of 3.17 times. The tail between the average and lowest accepted prices narrowed to 0.19, compared with that of last month's offering at 0.40, indicating stronger demand for the bonds.
The 20-year JGB yield edged up 0.5 bp to 0.605 percent.
But the 30-year yield shed 1.5 bps to 0.715 percent, moving away from 0.760 percent earlier as some investors stepped in to buy at session lows.
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