TOKYO: Japanese government bond prices soared on Monday as the Bank of Japan's surprise introduction of negative interest rates last week drove yields for up to almost nine years below zero.
The two-year yield fell as much as 8.0 basis points to minus 0.160 percent while the five-year notes yield dropped to minus 0.110 percent, both record lows.
The 10-year yield also fell to a record low of 0.050 percent , though the sector was an underperformer as investors braced for an auction of 10-year bonds on Tuesday.
The 10-year JGB futures hit an all-time high of 150.78 and closed up 0.14 point at 150.56.
While not many real money investors are eager to buy bonds with negative yields, some players who are purchasing them are doing so on the belief the BOJ will buy them at deeper negative yield, or higher price.
Many investors are also not willing to sell JGBs as they will have to then reinvest the proceeds into negative yielding bonds or other products.
This was evident in BOJ's JGB buying operation on Monday, which showed limited selling interest.
"The operation results were very strong. If conditions like this persist, people will come to a conclusion that they just have to buy," said Tadashi Matsukawa, head of fixed income investment at PineBridge Investments in Tokyo.
The BOJ said on Friday it will introduce a three-tier interest rate system, including negative interest rate of 0.10 percent on banks' additional deposits at the start of new reserve maintenance period on Feb 16.
The bank will keep paying 0.10 percent interest on existing excess reserves while offering zero interest on reserve deposits and some others.
The announcement surprised many investors as BOJ Governor Haruhiko Kuroda has repeatedly said he had not been considering negative rates.
The three-month euro-yen interest rate futures <0#JEY:> jumped with the benchmark June contract rising to 100.01 or an interest rate of minus 0.01 percent.
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