Japan bonds slip as traders gauge fragile US-Iran ceasefire

TOKYO: Japanese government bonds slipped on Thursday, as growing uncertainty over a fragile two-week ceasefire between the United States and Iran weighed on investor sentiment.

The 10-year JGB yield rose 2.5 basis points (bps) to 2.39%. Yields move inversely to bond prices.

“Optimism over the outlook of the Middle East war faded, with doubts about the reopening of the Strait of Hormuz,” said Naoya Hasegawa, chief bond strategist at Okasan Securities.

Investor sentiment dampened after Israel launched its heaviest strikes yet on Lebanon on Wednesday, killing hundreds of people and prompting threats of retaliation from Iran.

Tehran also signalled that it would be “unreasonable” to continue negotiations on a permanent peace deal with the United States.

The five-year yield rose 1.5 bps to 1.800%, trimming the earlier climb of 2 bps following an auction, which was labelled as ‘relatively firm’ by the market.

“The yield was an attractive level, and investors wanted to buy the newly issued bonds for their portfolio,” said Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management.

The finance ministry sold about 250 billion yen ($1.57 billion) of No. 184 five-year bonds, compared with the current benchmark issue, No. 183.

The auction followed a disappointing 10-year bond sale last week, which triggered a sell-off of JGBs and sent the 10-year bond yield to a 27-year high on Tuesday.

Super-long bonds also trimmed gains in the afternoon session.

The 20-year JGB yield rose 2 bps to 3.285%, and the 30-year yield inched up 0.5 bp to 3.6%, after rising to 3.655%.

The two-year yield rose 1 bp to 1.385%.