TOKYO: Japanese government bond (JGB) yields meandered on Wednesday, as caution over future rate hikes by the Bank of Japan (BOJ) saw lacklustre demand at an auction for 10-year JGBs, while increased bets for US cut rates this year supported buying.
Benchmark 10-year JGB futures fell 0.11 yen to 144.57 yen, while the 10-year JGB yield rose 0.5 basis point (bp) to 0.875%% following the auction results.
The bid-to-cover ratio, a measure of demand at auctions, was 3.15, the lowest since January, compared with 3.80 last month.
A smaller bid-to-cover ratio suggests less appetite for the bond.
Although short of expectations, the results were not wholly surprising given anticipation that the BOJ will hike interest rates again in the near future, Ryutaro Kimura, a fixed income strategist at AXA Investment Managers said.
“It is reasonable to say that there was little incentive to actively bid for 10-year JGBs in the mid-0.80% range.”
Remarks by US Treasury Secretary Janet Yellen late last month on currency intervention have led some market players to suspect the BOJ will have to take measures to slow the yen’s depreciation, Kimura said.
Yellen told Reuters in an interview that a currency intervention is acceptable only in very rare and exceptional circumstances.
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BOJ Governor Kazuo Ueda said on Wednesday the central bank may take monetary policy action if the yen’s fall affects prices significantly, offering the strongest hint to date the currency’s relentless decline could trigger another interest rate hike.
The two-year JGB yield ticked up 0.5 bp to 0.280%.
The five-year yield climbed 1 bp to 0.480%.
Meanwhile, the superlong end declined, tracking the benchmark 10-year Treasury yield, which fell to a three-week low overnight amid hope that the Federal Reserve would lower rates this year.
The 20-year JGB yield edged down 1 bp to 1.650%, while the 30-year JGB yield slid 1.5 bps to 1.955%.
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