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Markets

JGB futures fall after BOJ widens 10-year yield trading band

  • At the short end, the two-year JGB yield rose 0.5 basis point to minus 0.140%.
19 Mar 2021

TOKYO: Japanese government bond futures fell on Friday and most yields rose after the Bank of Japan agreed to allow benchmark yields to fluctuate in a slightly wider trading band.

The yield on 10-year government bonds will be allowed to move 25 basis points above or below zero, Japan's central bank said on Friday after a policy meeting.

That is larger than the previous trading range of 20 basis points.

The BOJ also made some technical changes to the market operations it uses to prevent yields from rising too quickly, which means the central bank will still maintain firm control of the yield curve, according to some analysts.

"There will be some slightly bigger moves, but it's difficult for the market to react because the widening of the trading band was widely expected," said Hiroshi Miyazaki, a senior economist at Mitsubishi UFJ Morgan Stanley Securities.

"The yield curve may not steepen that much, because the BOJ is sending a message that it has the ability to prevent yields from rising too quickly."

Benchmark 10-year JGB futures fell 0.14 point to 150.99, with a trading volume of 13,682 lots.

The 10-year JGB yield rose 1.5 basis points to 0.115%.

The 20-year JGB yield rose 0.5 basis point to 0.490%.

At the long end of the yield curve, the 30-year JGB yield was flat at 0.660% and the 40-year JGB yield was unchanged at 0.700%.

The five-year yield rose 0.5 basis point to minus 0.090%.

At the short end, the two-year JGB yield rose 0.5 basis point to minus 0.140%.

Some commercial banks and analysts have said the BOJ's yield curve control policy hurts banks' profits because it keeps the yield curve too flat.

The spread between two-year and 30-year Japanese government bonds was little changed on Friday at 80 basis points.

This is particularly flat when compared to yield curves overseas, which have been steepening recently due to rising inflation expectations, analysts said.