Japan’s long-term bond yields hit record high on fiscal concerns, BOJ hike bets

TOKYO: Yields on 20-year Japanese government bonds rose to a record high on Tuesday with investors remaining concerned about the new government’s fiscal policy, while also girding for higher Bank of Japan policy rates.

The five-year JGB yield hovered near a 17-year peak after demand at an auction of the notes came in slightly weaker than the previous sale a month ago.

Bond yields rise when prices fall. JGB investors largely ignored Monday’s powerful offshore earthquake , which ultimately did minor damage and did not trigger a massive tsunami, despite initial warnings.

The 20-year yield advanced 0.5 basis point to 2.955%.

The 30-year yield also added 0.5 bp to 3.39%.

Japan’s long-dated bonds have been under pressure following Prime Minister Sanae Takaichi’s announcement of a massive spending plan, funded largely by new borrowing.

“We expect the prevailing trend of rising interest rates and a falling yen will persist … as long as the market continues to view the administration as favoring reflationary fiscal and monetary policy,” Yusuke Matsuo, senior market economist at Mizuho Securities, wrote in a client note.

The 10-year yield eased 0.5 bp to 1.96%, but not far from the 18-year high of 1.97% touched in the prior session. The five-year yield was 0.5 bp lower at 1.44%. It touched 1.45% on Monday, the highest since June 2008.

The two-year yield was steady at 1.06%, which was the highest since July 2007.

Shorter-term yields are especially sensitive to central bank policy expectations, and have been rising since BOJ Governor Kazuo Ueda said at the start of this month that policymakers would “consider the pros and cons” of tightening policy at its December 18-19 gathering. Ueda’s comments at a Financial Times event later on Tuesday will be closely watched for signs of further tightening at future meetings.