JGB yields rebound after two-year bond auction sees poor demand

TOKYO: Japanese government bond (JGB) yields rebounded on Thursday after falling to multi-month lows this week, after an auction for the two-year JGB saw some of the weakest demand in over a decade.

The 10-year JGB yield rose 1 basis point (bp) to 0.685%, up from a two-and-a-half-month low of 0.0635% hit earlier in the session.

The two-year JGB yield was down 0.5 bps at 0.035%, just off a session low of 0.03%.

The results “were not good” at an auction for the bond conducted by Japan’s Ministry of Finance on Thursday, said Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management.

The bid-to-cover ratio - which compares total bids to the amount of securities sold and acts as a measure of demand - came in at 2.91, its lowest since 2009.

Inadome attributed the poor demand to the current yield level, saying that “yields fell too far this morning” before the auction.

JGB yields have fallen far from the multi-year highs reached at the beginning of the month, after the Bank of Japan (BOJ) at its October monetary policy meeting changed a 1% hard cap on long-term rates under its yield curve control policy to a reference point.

Japan yields drop to nearly 3-month lows amid dovish Fed bets

Their decline has largely mirrored US Treasury yields, to which Japan’s yields tend to be sensitive, which have tumbled as investors continue to bet on a Federal Reserve rate cut in the first half of 2024.

The 10-year Treasury yields briefly touched a fresh two-month low during Asian hours.

Earlier this week, Federal Reserve Governor Christopher Waller, a hawkish and influential voice at the central bank, said that he was “increasingly confident that policy is currently well positioned.”

On the superlong end, the 30-year JGB yield reversed course to rise 2 bps to 1.65%.

The 20-year JGB yield was up 1.5 bps at 1.435%, picking up from a multi-month low of 1.37%.

The five-year yield inched up 1 bp to 0.27% after falling as low as 0.235% in the session, its lowest since early September.