TOKYO: Japanese government bond (JGB) yields hovered in a tight range on Tuesday, as an auction for 10-year bonds made few waves amid heightened expectations that the Bank of Japan will raise interest rates this month.
The 10-year JGB yield rose to as high as 1.085% but was last flat at 1.075% after the auction, while 10-year JGB futures rose 0.05 points to 142.87 yen.
The auction results were “adequate,” with limited reaction in yields suggesting it was in line with expectations, said Makoto Suzuki, senior bond strategist at Okasan Securities.
The bid-to-cover ratio, a common measure of demand, came in at 3.12, down a hair from 3.13 in November.
At the same time, investors were eyeing a December rate hike at the BOJ’s 18-19 meeting.
The two-year JGB yield, which more closely corresponds to monetary policy expectations, had hit a 16-year high of 0.625% on Monday following an interview with BOJ Governor Kazuo Ueda published in the Nikkei newspaper over the weekend.
In the interview, Ueda said the timing of the next interest rate hike was “approaching,” reinforcing growing bets that the BOJ will raise rates from the current 0.25% as soon as its next meeting. The yield was last down 1 basis point at 0.61%, but remained near recent peaks.
“The fact that (the two-year yield) has risen to 0.6% means that, in a way, a hike of 0.25% has already been factored in by the market to some extent,” said Suzuki.
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Barring any surprise events or big moves in US Treasury yields, JGB yields will likely hold relatively steady as investors wait to confirm the BOJ’s decision, he said.
The five-year yield fell 0.5 bp to 0.74%.
The 20-year JGB yield was unchanged at 1.87%, while the 30-year JGB yield edged up 0.5 bp to 2.29%.
The 40-year JGB yield was up 0.5 bp at 2.64%.
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