TOKYO: Japanese government bond (JGB) yields declined on Tuesday, with buyers gaining confidence from strong demand at an auction of five-year notes against a quiet US Treasury market backdrop.
The 10-year JGB yield fell 1 basis point (bp) to 0.86% as of 0420 GMT, doubling its decline following the auction result announcement.
The five-year yield dropped 2 bps to 0.405%, from being flat ahead of the sale.
The tail at the auction - the difference between the lowest price paid and the average price - halved to 0.01 yen compared to last month’s sale.
A shorter tail signals higher demand. Investors were encouraged to buy by the recent stability of domestic and US yields, the fact that the five-year sector looks relatively cheap, and a 10-bp increase in the coupon on the new issue to 0.4%, according to Naomi Muguruma, a senior market economist at Mitsubishi UFJ Morgan Stanley Securities.
JGB yields track down; better-than-expected demand at 30-yr bond auction
The US 10-year Treasury yield hovered around 4.63% on Tuesday as it has since ending Thursday at that level.
With no Bank of Japan policy meeting until December, US rates will remain the key driver for yen yields in the near term, with the imminent focus on US consumer inflation data due later in the day, Muguruma added.
The two-year JGB yield was 0.5 bp lower at 0.095%.
The 20-year JGB yield fell 1 bp to 1.57%, while the 30-year yield eased 0.5 bp to 1.76%.
Benchmark 10-year JGB futures rose 0.12 yen to 144.50.
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