Benchmark JGB yields rise toward 30-year high as fiscal fears cloud auctions

TOKYO: Japanese government bonds fell on Monday, with the benchmark 10-year yield rising for a sixth consecutive session toward a three-decade high, as inflation and fiscal concerns weighed on the market.  

Here are a few details:

The 10-year JGB yield climbed 2 basis points (bps) to 2.790%, nearing an intraday peak of 2.81% reached on Friday that was the highest since October 1996.

Yields move inversely to bond prices.

JGB yields have been rising over the past month, especially at the long end, driven by inflation risks tied to energy shocks, a sharply weaker yen, and worries about increased spending by the government.

Auction demand has been uneven, and investors are looking ahead to 30-year and 5-year debt sales this week.

“Concerns over fiscal expansion and wariness regarding monetary policy management remain deeply rooted in the market,” Takayuki Miyajima, senior economist at Sony Financial Group, said in a note.

“Conditions are persisting that make it difficult for long- and ultra-long-term interest rates to decline.”

The Bank of Japan’s recent hawkish shift, including its June rate hike to 1%, has kept upward pressure on JGB yields, with markets pricing in further tightening later this year.

Global bond markets provided mixed signals.

Prior to the US holiday on Friday, Treasury yields eased after weaker-than-expected jobs data tempered expectations of a near-term Federal Reserve rate hike. German Bund yields rose amid position adjustments tied to geopolitical developments.

The yield on the 30-year JGB advanced 2 bps to 4.045%, poised for its highest close since May 20.

The yield on the 40-year JGB, Japan’s longest tenor, was unchanged, while the 20-year JGB held steady.

At the short end, the two-year yield, the one most sensitive to BOJ policy rates, was unchanged at 1.385%, while the five-year JGB yield added 1 bp to 1.930%.