Japan’s Benchmark Yield Almost Back Above Zero on BOJ, Auctions

  • Super-long yields on 30-, 40-year JGBs hit highest since March
  • Debt auctions, Fed rate-hike expectations weigh on sentiment

Japanese government bonds’ worst week in a month sent 10-year yields almost back up to zero amid speculation the Bank of Japan will tweak its debt-buying program this month and concerns that demand will decline at auctions this month.

Benchmark yields climbed to minus 0.02 percent, the highest since March 16, at 5:35 p.m. in Tokyo. Forty-year yields advanced to 0.57 percent, the most since March 24. Thirty- and 20-year yields increased to levels unseen since March 31, touching 0.52 percent and 0.42 percent, respectively.

“Yields are rising on wariness that the BOJ might reduce purchases in the super-long sectors when it meets this month,” said Souichi Takeyama, a rates strategist at SMBC Nikko Securities Inc. in Tokyo. “Rising volatility is also raising concerns about demand at a slew of auctions this month.”

Long-term bonds also slumped after the BOJ only bought debt with maturities of 10 years or shorter at its regular market operation on Friday, Takeyama said. Speculation the Federal Reserve will raise interest rates this month also exacerbated the drop in Japanese bonds, he added.

Governor Haruhiko Kuroda said in July that there would be a comprehensive review conducted for the policy meeting on Sept. 20-21. He said it would be aimed at helping the BOJ reach its 2 percent inflation target, rather than retreating from it.

“People are on edge because they don’t know what will actually come out from the BOJ,” said Toru Suehiro, the senior market economist at Mizuho Securities Co. in Tokyo.

The Ministry of Finance sold 10-year bonds on Thursday and plans to sell 30-year debt next week, followed by 20- and 40-year securities later in the month.

“The selloff in super-long bonds on disappointment the BOJ didn’t buy these sectors at its operation is leading to the bear steepening of the curve,” said Hideo Suzuki, chief manager of forex and financial products trading at Mitsubishi UFJ Trust & Banking Corp. “There is no real sense in the market as to how far yields could rise. Pension funds and life insurers have to buy a certain amount of bonds, but they may be limiting their purchases to the minimum.”

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