TOKYO: Japanese government bonds dropped on Wednesday after a five-year bond auction drew the weakest demand in more than five years, triggering a wave of selling by investors.
The five-year yield rose 3 basis points (bps) to 1.070%.
The 10-year JGB yield rose 2.5 bps to 1.525%.
Yields move inversely to bond prices. The lacklustre auction followed a session in which the 10-year JGBs untraded all day, reflecting thin liquidity during Japan’s “Obon” holiday season.
“The market was worried about the liquidity and hesitated to participate in the auction,” said Katsutoshi Inadome, a senior strategist at Sumitomo Mitsui Trust Asset Management.
The auction received bids worth 2.96 times the amount sold, the lowest ratio since March 2020, and lower than a ratio of 3.54 times at the previous auction in July.
The level of the five-year bond yield was not high enough, so that the market was afraid to buy bonds in case the yield rises in the coming sessions, said Miki Den, a senior Japan rate strategist at SMBC Nikko Securities.
JGB yields have eased from their highs in July as expectations of a rate hike by the Bank of Japan receded, following the central bank’s caution over persistent risks to the economic outlook.
The two-year JGB yield rose 1.5 bps to 0.785%.
Yields on longer-dated bonds fell, with 20-year JGB yield slipping 0.5 bp to 2.515%.
The 30-year JGB yield fell 0.5 bp to 3.085%. The 40-year JGB yield fell 1.5 basis points to 3.285%. Reuters
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