TOKYO: Japanese government bond (JGB) yields fell on Tuesday, tracking U.S. Treasury yields, while the market kept its focus on potential further domestic interest rate hikes.
The 10-year JGB yield touched a one-week low of 1.365% and was last down 4.5 basis points at 1.38%. Benchmark 10-year JGB futures rose 0.47 points to 139.71 yen.
With Japanese markets closed on Monday for a public holiday, JGB investors reacted to a decline in U.S. Treasury yields over the long weekend.
Benchmark 10-year U.S. Treasury yields touched a two-week low on Friday after several data releases pointed to slowing growth, increasing bets that the Federal Reserve will cut rates two times this year.
The decline in JGB yields continues from Friday, after BOJ Governor Kazuo Ueda reiterated a pledge that the central bank could increase bond buying if “abnormal” market moves trigger a sharp rise in yields.
But the fall in yields is expected to be limited, with investors expecting interest rates to rise further.
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Economists polled by Reuters expect one more rate hike this year. Futures markets have priced in nearly a quarter-basis-point hike by September, although a small portion of market players are betting on a small chance of a rate increase as soon as May.
With the yen still hovering around 150 per dollar and consumer sentiment taking a hit from rising food prices, “we cannot rule out the possibility of an additional rate hike as early as the April 30-May 1 BOJ meeting”, said Ryutaro Kimura, fixed income strategist, AXA Investment Managers.
The results of spring wage negotiations and yen levels going forward will be key, he added.
The 20-year JGB yield fell 2 bps to 2.035%, while the 30-year JGB yield declined 1.5 bps to 2.325%.
The two-year JGB yield also ticked down 1.5 bps to 0.795%. The five-year yield slid 3 bps to 1.025%.
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