Japanese government bond prices were mixed on Tuesday, with the two-year yield hitting a 16-month high on receding expectations of a near-term Bank of Japan rate cut before solid bond auction results helped to curb losses in the market.

Benchmark 10-year JGB futures rose 0.11 point to 151.88 by late afternoon trade after opening 0.07 point lower.

In the cash bond market, the 10-year JGB yield was flat at 0.005%, just below the 9-1/2-month high of 0.010% touched last week.

JGB yields have been gradually rising in recent months on signs the global economy is bottoming out and hopes Washington and Beijing will sign a trade deal soon.

The two-year JGB yield rose 0.5 basis point to minus 0.095%, its highest since August last year, as traders hesitated to buy ahead of an auction of 2.0 trillion yen ($18.29 billion) worth of two-year JGBs.

But the auction saw decent demand, with the tail shrinking to 0.005 from 0.011 in the previous auction. The bid-to-cover ratio rose to 4.69 from 4.13. The average yield was minus 0.098%, the highest since January 2016.

The rising yield reflects fading expectations of a rate cut by the Bank of Japan.

The one-year overnight indexed swap rate rose to -0.063% , almost flat from the one-month rate and just below the current overnight call rate, suggesting investors have completely wiped out rate-cut expectations.

Just two months ago, a cut of at least 10 basis points was fully priced in.

But the Swedish central bank's move to end its five-year experiment with negative interest rates fuelled speculation negative rates will no longer be popular among policymakers.

At the longer end of the market, the 20-year JGB yield rose 0.5 bp to 0.315%. The 30-year yield rose 0.5 bp to 0.445%, while the 40-year yield was flat at 0.460%.

The five-year yield fell 0.5 bp to minus 0.090%, helped by short-covering in the futures after the two-year auction.

Copyright Reuters, 2019

Comments

Comments are closed.