TOKYO: Japanese 10-year government bonds traded for the first time in five sessions on Thursday, while yield spread between the 10- and 20-year bonds reached the widest in seven years.
The 20-year government bond yield rose one basis point to 1.070%, its highest since December 2015. The 10-year JGB yield fell 0.5 basis point to 0.245%, in its first trade since Oct. 5.
The gap between yields on the two tenors widened to 81.1 basis points (bps), the largest since May 2015.
The Bank of Japan has been aggressively keeping the 10-year yield below 0.25%, the top end of the ceiling under its yield curve control(YCC) scheme, as it keeps an ultra-low rate policy to support the economy, going against the global tide of tightening to contain inflation.
“The Bank of Japan owns so many bonds… And with 10-year yields butting up against the YCC target, there’s no real incentive for anyone else to trade,” said Tom Nash, a fixed income portfolio manager at UBS Asset Management in Sydney.
“If you want to day trade Japan, you do it in other tenors that the Bank of Japan doesn’t have such a big footprint in.”
Ten-year JGBs untraded for record third straight session
The 10-year bonds had been untraded for four straight sessions, the first such occasion since newly issued 10-year bonds became the benchmark in 1999.
Yields on nine-year bonds maturing in September 2031, which are outside the BOJ’s target for controlling yield movement, were last at 0.284%, indicating the upward potential for the benchmark 10-year yields.
The 30-year JGB yield fell 0.5 basis point to 1.470%, after hitting a two week high in the previous session, when the government held an auction for the notes with the same maturity.
“The outcome of the auction was weak,” said Ataru Okumura, strategist at SMBC Nikko Securities. “And that probably lifted demand for the notes in the secondary market from life insurers.” The 40-year JGB yield fell 1 basis point to 1.690%.
The two-year JGBs were not traded and the yield stayed at -0.060%, while the five-year yield rose 0.5 basis point to 0.065%.
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