TOKYO: Japanese government bond (JGB) yields climbed to fresh peaks on Monday, as investors reacted to a rise in US Treasury yields on Friday and weighed the chances of a possible policy tweak in the Bank of Japan’s monetary policy decision.
The 10-year JGB yield rose 2 basis points (bps) to over a decade’s high at 0.89% the day before the Bank of Japan (BOJ) is set to announce its monetary policy decision.
JGB yields, which move inversely to bond prices, have in recent weeks been pushed to fresh highs due to rising US Treasury yields and speculation that the Japanese central bank could make an adjustment to its yield curve control (YCC) policy.
Following a tweak to YCC policy at the bank’s July meeting, the de-facto cap currently allows the 10-year yield to rise as high as 1.0%.
JGB yields retreat from recent multi-year highs as US peers slide
Despite mounting pressure, the BOJ is widely expected to keep its short-term rate target at -0.1% and that for long-term rates around 0% set under its YCC policy.
Meanwhile, an auction for the 2-year note ended with “mixed” results, with investors seen buying ahead of the auction, Shoki Omori, chief Japan desk strategist at Mizuho Securities, said.
The two-year JGB yield edged up to 0.095% ahead of the auction, its highest since January 2014.
While the bid-to-cover ratio - a measure of demand at auctions - was the weakest in years, coming in at 3.04, the overall auction result “isn’t bad if you consider markets are expecting some sort of hawkish message or twist in policy tomorrow,” Omori said.
The five-year yield stood at its highest since May 2013 at 0.395%.
On the superlong end, the 20-year JGB yield was up 2 bps at 1.68%.
The 30-year JGB yield rose 1.5 bps to 1.85%.
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