Japan benchmark bond yield extends rise after hitting 30-year high

TOKYO: The benchmark 10-year Japanese government bond yield hit a 30-year high on Thursday, driven by concerns over ​inflation from renewed tensions in the Middle East and Japan’s fiscal health, while a ‌five-year JGB auction was relatively firm as expected.

The 10-year JGB yield rose 3.5 basis points to 2.900%, the highest since September 1996. It also marked its ninth straight day of gains, the longest streak in 19 years. ​Yields move inversely to bond prices.

Analysts saw the outcome of five-year note auction as ​moderately firm. The auction’s bid-to-cover ratio, a measure of demand, was 3.43 times, ⁠compared with 3.11 times at the previous sale.

“When yields are up across the curve, investors ​want to buy shorter-dated bonds to avoid risks,” said Miki Den, the senior Japan rate strategist at ​SMBC Nikko Securities.

“But the level of the yield on the five-year bonds is not high enough given ongoing inflation. That capped demand for the auction,” he added.

The five-year yield rose 0.5 bps to 1.990%, easing slightly after ​the auction. The two-year yield , the one most sensitive to the Bank of Japan’s policy rates, increased 1.5 ​bps to 1.445%.

Oil prices jumped more than 1% after U.S. President Donald Trump said he thought a tentative deal to end ‌the war ⁠with Iran was over, pushing U.S. Treasury yields to a multi-week high. ,

Longer-dated JGBs, more sensitive to inflation and fiscal-risk premiums, came under pressure. The 20-year JGB yield climbed 2 bps to 3.890%. The 30-year yield added 3 bps to 4.030%. The yield on the 40-year JGB , Japan’s longest tenor, ​rose 5 bps to 4.055%.

JGB ​yields have risen ⁠since the government outlined large spending plans in the policy blueprint last month. The blueprint called on the BOJ to align monetary policy with growth ​efforts, fuelling concerns the government could pressure the central bank to keep ​interest rates ⁠low and risk falling behind the curve as inflationary pressures build.

Tokyo is considering revising language on monetary policy in the economic blueprint, a draft obtained by Reuters showed.

The gap between 10-year and 2-year JGB yields ⁠widened on ​Wednesday to 143 bps, the highest since 2004, reflecting growing ​concerns about inflation and price risk on the long end along with shrinking expectations for BOJ rate hikes on the short ​end.