TOKYO: Japanese government bond (JGB) yields tanked on Friday as bets for the Bank of Japan’s interest rate hike receded, prompting investors to unwind positions they made for the policy tightening.
The 10-year JGB yield fell 17.5 basis points to 1.185% to its lowest level since January 29, the biggest decline since August 5, and is down nearly 37 bps this week, their steepest weekly fall since 1992.
The two-year JGB yield fell 11.5 bps to 0.635% and the five-year yield fell 15.5 bps to 0.81%.
“Investors had been selling mid-to-long term JGBs as they braced for the central bank’s interest rate hike,” said Naoya Hasegawa, chief bond strategist at Okasan Securities.
“Now they are unwinding those positions as investors turned pessimistic about the outlook of the global economy as US tariff cast clouds over the growth,” he said.
The bets that the BOJ could raise its policy rate beyond 1% sometime next year sent yields across some tenors to 17-year highs only last week.
These expectations have retreated after US President Donald Trump announced on Wednesday Washington’s steepest trade barriers in more than 100 years, sending investors scrambling for safe-haven assets, including the bonds.
JGB yields march higher with focus on 30-yr bond auction
Swap rate now shows a 1.38% chance of the BOJ raising the policy rate by 25 bps to 0.75%, down from some 9% in the previous session.
The 20-year JGB yield fell 12 bps to 1.97% and the 30-year JGB yield declined 9.5 bps to 2.295%.
The 40-year JGB yield fell 4 bps to 2.64%.
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