TOKYO: Japanese government bonds inched lower on Tuesday as investors awaited a key U.S. consumer inflation report later in the day to assess the outlook for interest rates.
The two-year JGB yield rose 0.5 basis point (bp) to 0.77% and the five-year yield rose 1 bp to to 1.045%.
Yields move inversely to bond prices.
“Investors cannot make active bets as they are not sure in which way the price data will move,” said Naoya Hasegawa, chief bond strategist at Okasan Securities.
The market also awaited an auction for five-year bonds in the next session, which may witness a stable outcome.
“The auction will not receive strong demand given the current level of the five-year bond yield. But there is little upward pressure on the yields, so there will not be any negative surprise,” Hasegawa said.
Also, the auction may be supported by demand from pension funds, which need to rebalance their portfolios amid a sharp recent rally in Japanese stocks.
Pension funds, such as the Government Pension Investment Fund (GPIF), have allocation targets for each asset in their portfolios. When stocks rise, they need to boost bond holdings to maintain that composition.
Both Japan’s Nikkei share average and the broader Topix rose to a record high on Tuesday.
The 10-year JGBs have not been traded as of 0450 GMT.
The 20-year JGB yield rose 1 bp to 2.52%.
The 30-year JGB yield rose 2 bps to 3.090%.
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