Shorter JGB yields climb on lingering rate concerns

Short- and midterm Japanese government bond yields rose on Wednesday, with the two-year yield hitting a five-year high on lingering concerns that the Bank of Japan could raise interest rates sooner than previously thought.
"Investors are still saddled with uncertainty over the BoJ's policy," said Naomi Hasegawa, senior strategist at Mitsubishi UFJ Securities.
BoJ policy board member Atsushi Mizuno reiterated hawkish comments in a speech in Chicago late on Monday, saying an early rate hike was possible. Given his well-known hawkish stance, his comments came as little surprise, but they reminded many market players of the risk of BoJ policy changes in coming months.
Japan's markets were closed on Tuesday for a national holiday.
The key June 10-year JGB futures contract price fell 0.06 point to 133.72 after briefly dropping as low as 133.54, its lowest since June 2004. The two-year yield hit a fresh five-year high of 0.575 percent, exceeding last week's high of 0.565 percent.
The five-year JGB yield rose two basis points to 1.230 percent, not far off the five-year high of 1.250 percent hit last week. Longer-dated paper bucked the trend, flattening the yield curve sharply.
These movements reflected those in the US debt yield curve on Tuesday. Short-term US Treasury yields rose sharply as a jump in producer prices and economic optimism from Federal Reserve Chairman Ben Bernanke hurt the Treasuries market. Traders said a comment from BoJ Governor Toshihiko Fukui helped longer-dated yields to fall.
Fukui said on Wednesday that the BoJ had no plan to immediately reduce the amount of government bonds it buys outright after it finishes reducing current account deposits to a normal level.
The BoJ currently buys 1.2 trillion yen ($10.24 billion) in long-term JGBs outright from the market every month.
The benchmark 10-year yield slid a half basis point to 1.725 percent after hitting a fresh 19-month high at 1.740 percent. The 20-year yield fell 1.5 basis points to 2.070 percent, and the 30-year yield was down 3.0 basis points to 2.275 percent.