TOKYO: Japan’s benchmark 10-year bond yields rose to a six-year high on Monday, breaching the Bank of Japan’s policy band despite the central bank’s aggressive move to cap yields.
The benchmark 10-year government bond yields rose 0.5 basis point to 0.255%, the highest level since January 6, 2016 and crossed the top of the BOJ’s upper limit of its policy line of 0.25%.
The yields rose after data over the weekend showed that US consumer prices soared in May, fuelling fears of an even more aggressive set of interest hikes by the Federal Reserve in coming months.
The bigger than-expected US inflation spike sent US Treasury prices tumbling, with short- and intermediate-dated yields reaching their highest levels in over a decade on Friday “US inflation data suggested the Federal Reserve may raise rates even more aggressively and that put upward pressure on Japan’s key yields,” said Takayuki Miyajima, senior economist at Sony Financial Group.
“Also some market participants may have started pricing in a possible change of the Bank of Japan’s monetary policy, as the rapidly weakening yen has affected prices in Japan.”
The yen tumbled to its lowest against the dollar in 24 years on Monday, as the gap between Japanese and US benchmark yields widened after the red-hot US inflation data drove Treasury yields higher. Japan’s 10-year yields rose despite the central bank’s daily offers to buy unlimited amounts of 10-year bonds to keep the benchmark rate below the bank’s target.
JGB yields tick higher, tracking Treasuries amid Fed tightening worries
Under yield curve control, the BOJ guides short-term rates at -0.1% and the 10-year JGB yield around 0%. The BOJ has offered to buy unlimited amounts of 10-year government every day since April.
On Monday, the 20-year JGB yield jumped 6 basis points to 0.850% and the 30-year JGB yield climbed 7.5 basis points to 1.160%, steepening the yield curve.
The 40-year JGB yield also jumped 9 basis points to 1.260%.
Following the yield movements, the central bank announced an additional, unscheduled outright purchase of JGBs, offering to buy 500 billion yen ($3.71 billion) worth of bonds with maturity of more than five years and up to 10 years.
Benchmark 10-year JGB futures fell 0.52 point to 148.51, with a trading volume of 30,896 lots.
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