Japanese government bond yields up on US interest rate expectations

Japanese government bond (JGB) yields surged on Monday, with the yield on 20-year bonds touching a 28-month high, on speculation about higher US interest rates after strong US jobs data.
Also hit by a three percent gain in Tokyo's Nikkei 225 share average, the yield on the cash benchmark 10-year Japanese government bond shot up eight basis points to match a nine-month high of 1.675 percent.
"There was a lot of follow-through selling after the yield on the 10-year Japanese government bond rose past 1.6 percent this morning in reaction to the US jobs report," said Naoki Suzuki, a strategist at Dresdner Kleinwort Wasserstein.
Analysts said many market players would likely review their Japanese government bond investment strategies given the rise in 10-year yields to their highest level since the Bank of Japan (BOJ) adopted its easy monetary policy in March 2001.
"With strong US jobs data and a rise in Japanese share prices, bonds have been placed in a really bad situation," said Seiji Shiraishi, chief market economist at Daiwa Securities SMBC.
Yet other analysts weren't completely sold on the idea that Japanese government bonds had taken a turn for the worst, and were confident prices would recover as investors stepped into the market to buy on dips.
In early trading, the 20-year bond yield surged seven basis points to 2.250 percent, its highest level since February 2002. At 0600 GMT, it was up six basis points at 2.240 percent.
The June Japanese government bond futures contract skidded as much as 0.83 point to 136.72 in afternoon trade before ending the session down 0.80 point at 136.75, a six-week low.
The yield on the five-year bond rose 6.5 basis points to 0.750 percent, a seven-month high.
Selling pressure in the five-year sector was compounded by the prospect of a two trillion yen ($18.05 billion) auction scheduled for Tuesday.
The key yield hit a high of 1.675 percent in September after sinking to an all-time low of 0.43 percent in June last year.
In the money market, prices were stable with benchmark three-month euroyen futures for March 2005 expiry at 99.845, down only 0.005 point on the day.