Japanese government bond yields rose on Wednesday as cooler US inflation data made little impact on traders’ expectations for future aggressive rate hikes from the Federal Reserve.
The 20-year JGB yield rose 8 basis points to 0.925% after a weak response to a Ministry of Finance auction, with a price tail - the gap between the lowest and average prices - of 0.84 and a bid-to-cover ratio of 2.51.
“This was a very bad result,” said a domestic securities broker. “The tail was the worst since December 1987, and the bid-to-cover ratio was also low. The cash bonds and futures markets look to be reacting negatively.”
US producer price index data overnight showed a second straight monthly decline, in line with expectations, but it was not enough to overcome the sharp reaction to the unexpected consumer price index rise the previous day.
Markets are pricing in at least a 75 basis point rate hike for the Fed’s upcoming September meeting, with a 30% chance now seen of a highly aggressive 100 bps hike, down slightly from 31% a day ago.
The key 10-year JGB yield remained at 0.250%, the Bank of Japan’s implicit policy cap, after rising to that level the previous day for the first time since June 17.
The five-year yield rose half a basis point to 0.045%. Yields on longer notes also rose.
The 30-year JGB yield rose 8 basis points to 1.260%, and the 40-year yield rose 1.5 basis points to 1.345%. Benchmark 10-year JGB futures fell 0.13 point to 148.59.