TOKYO: Japanese government bond yields rose on Tuesday, tracking a rise in US Treasury yields as traders try to gauge the odds of more Federal Reserve rate hikes.

The five-year JGB yield was an outlier, falling on the day, although weak demand at an auction of the securities during the session lifted the yield off early lows.

The 10-year JGB yield rose 1 basis point (bp) to 0.625% as equivalent Treasury yields reached a nine-month high of 4.219% in Tokyo trading, ahead of the release of US retail sales and trade data later in the day.

The 20-year JGB yield increased 1.5 bps to 1.32%, while the 30-year yield increased 0.5 bp to 1.595%.

Since the Bank of Japan (BOJ) loosened its yield curve control (YCC) policy to effectively raise the cap on 10-year yields to 1%, investors have been testing the waters to see how far and fast the central bank will allow yields to rise.

At the same time, analysts and investors expect the central bank to keep its negative short-term interest rate in place for the foreseeable future, anchoring yields in shorter tenors.

Japan’s 10-year bond yield falls to near 2-week low after firm auction result

The two-year JGB yield was flat at 0.015%. The five-year yield fell 0.5 bps to 0.195%, and was earlier as low as 0.185%, but lifted from that level after the finance ministry announced the auction results.

“The results were overall somewhat weak,” said Chotaro Morita, chief rate strategist at SMBC Nikko Securities. The 5-year yield dropped “too much” in the Tokyo morning due to some heavy buying ahead of the auction, creating an environment ripe for bond prices to retreat, he said.