TOKYO: Japanese superlong bond yields fell on Wednesday, as heightening worries about a slowdown in China and its knock-on effect for the local economy buffed demand for safer securities.
Buying was centred on the 20-year bond, pushing the yield down 2.5 basis points (bps) to 1.295%.
The yield had risen to a one-week high of 1.325%, reacting to a near ten-month high in US benchmark yield as traders bet the Federal Reserve would keep rates elevated for longer.
Data showing the first drop in Chinese new home prices this year punctuated the problems building in the country’s property sector, which makes up a quarter of the economy.
The flight from riskier assets was evident in a 1.5% slide in Japan’s benchmark Nikkei 225 share average.
The decline in the 20-year JGB yield was surprising because it came a day before a sale of the securities, said Naomi Muguruma, senior market economist at Mitsubishi UFJ Morgan Stanley Securities.
“Most market participants had probably expected that the 20-year yield would rise in preparation for the auction,” she said.
Japan’s 10-year bond yield falls to near 2-week low after firm auction result
The reason that investors targeted the 20-year is because it is relatively cheaper than 10-year securities, Muguruma said.
The current yield gap of around 67 bps compares with an average of around 60 bps from the start of April through end-July, when the Bank of Japan unexpectedly relaxed yield curve controls.
The 10-year yield was flat at 0.625%, giving up a 0.5 bp rise to 0.63%, also a one-week peak.
“I think the auction will go without major incident, although the yield below 1.3% may deter some buyers,” Muguruma said.
The 30-year JGB yield fell 2 bps to 1.575%, reversing an early rise to a one-week high at 1.605%.
The five-year yield was flat at 0.205%, also shedding an earlier increase.
The two-year JGB yield was unchanged at 0.015%. Benchmark 10-year JGB futures finished the day up 0.03 yen at 146.63, flipping from initial declines.
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