The yield on benchmark 10-year Japanese government bonds soared to a 5-1/2-year high on Friday, hoisted by a wave of selling across global bond markets as central banks ratchet up short-term interest rates.
JGBs have been battered all year long as investors brace for the Bank of Japan to begin lifting overnight rates from zero in the third quarter this year as the economy stages a solid recovery from nearly a decade of deflation.
The BoJ appears set to join the Federal Reserve and European Central Bank in turning the screws on cheap money, slamming government bond markets that had become long accustomed to relaxed monetary policies.
The benchmark 10-year bond yield at one point jumped to 1.980 percent, the highest since September 2000, just after the BoJ last raised short-term rates in August of that year. Ten-year yields later pulled back to 1.960 percent, up 3.5 basis points on the day.
A day earlier 10-year US Treasury yields soared to four-year highs above 5 percent and 10-year Bund yields struck 18-month peaks just below 4 percent.
Making matters worse for JGBs was the lack of follow-through buying at a five-year auction the previous day, even though it was one of the first major auctions since the new fiscal year began this month and was expected to draw demand.
"The combination is pretty tough on JGBs," said John Richards, director of Asian interest rate strategy at Barclays Capital in Tokyo.
Five-year yields spiked up 6.5 basis points to 1.440 percent, an all-time high since the maturity was first issued in February 2000, before settling down to 1.400 percent.
Two-year yields the most sensitive to the monetary policy outlook, rose one basis point to 0.675 percent but are still below a seven-year high of 0.715 percent struck in late March.
At such peaks, investors appear keen to begin locking in yields not seen in years, especially once the 10-year yield reaches 2 percent. Except for brief spikes in 1999, the 10-year yield has been stuck below 2 percent for almost nine years.