TOKYO: Japanese government bonds slipped on Tuesday, pushing the benchmark yield into positive territory for the first time in eight weeks, after results of a 5-year auction fell short of market expectations.
The 10-year JGB yield added 2.5 basis points (bp) to 0.5 percent, its highest level since Sept. 21, the day the Bank of Japan announced its current monetary policy of guiding the 10-year yield around the zero percent mark.
Benchmark 10-year JGB futures ended down 0.29 point at 150.83, their lowest since Aug. 2.
Sagging U.S. Treasuries prices have added to pressure on JGBs. Yields on Treasury notes have soared in recent days, reflecting expectations that U.S. President-elect Donald Trump's Administration will embark on inflationary economic policies.
"Market players are waiting to see how the BOJ reacts to the recent JGB yield rise," said Keiko Onogi, a senior strategist at Daiwa Securities.
"Today's 5-year auction caved, which was the cause of the market's decline in the afternoon, so we'll see from here, not only U.S, market movements, but how the BOJ behaves," she said.
In light of the central bank's dwindling monetary ammunition, many analysts believe Japanese policymakers are starting to see fiscal stimulus as the most likely next step to spark economic growth.
Japan's Ministry of Finance offered 2.4 trillion yen of 5-year JGBs with a 0.1 percent coupon. The sale produced a highest yield of minus 0.150 percent, with 43.6904 percent of the bids accepted at the lowest price of 101.22.
The auction drew bids of 3.56 times the amount offered, down from the previous sale's bid-to-cover ratio of 4.31 times.
The tail between the average and lowest accepted prices widened to 0.05, compared with that of last month's offering at 0.00, indicating slightly weaker demand for the bonds.
In late trading, the 5-year JGB yield added 4.5 basis points to minus 0.110 percent, its highest level since Feb. 4.
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