TOKYO: Japanese government bond yields pulled back from near more-than-decade peaks on Monday, tracking a slide in Treasury yields as cooler US inflation revived bets of Federal Reserve rate cuts.
The 10-year JGB yield fell 1 basis point (bp) to 1.06% as of 0443 GMT, following its jump to 1.1% on Thursday for the first time since July 2011.
That’s as equivalent Treasury yields extended their drop from last week to as low as 4.483% in Tokyo hours on Monday, pushing further below the psychologically important 4.5% level.
However, the retreat in Japanese yields was limited by caution ahead of an auction of 10-year JGBs on Tuesday, and building expectations that the Bank of Japan (BOJ) will either tighten policy at its meeting on June 13-14, or signal an imminent hawkish shift.
The BOJ raised rates for the first time since 2007 in March, and then last month unexpectedly cut the amount of bonds it offered to purchase at a regular buying operation.
“Investors are still uncertain as to when and by how much the BOJ might reduce their purchase operations,” said Shoki Omori, chief Japan desk strategist at Mizuho Securities, adding that he expects a cut in purchase amounts next week but no rate hike.
Ongoing uncertainty is likely to suppress demand at Tuesday’s 10-year note auction, as the market is struggling to work out the “right level” for the 10-year yield, Omori said.
Benchmark 10-year JGB futures rose 0.17 yen to 143.16, pulling further away from Thursday’s low of 142.85, a level last seen in mid-2013. The two-year JGB yield eased 0.5 bp to 0.395%, after climbing to 0.41% on Friday, the highest since April 2009.
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The five-year yield declined 0.5 bp to 0.63%, from as high as 0.64% on Thursday, a level last reached in November 2009.
The 20-year yield slipped 0.5 bp to 1.87%, while the 30-year yield was flat at 2.23%, after both reached their highest levels since 2011 on Thursday.
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