U.S., Japan Bonds Decline as BOJ Targets Benchmark Yield at Zero

Treasuries and Japanese bonds fell after the Bank of Japan said it plans to target 10-year yields in the nation at zero percent, spurring speculation it won’t allow a repeat of this year’s plunge to negative levels.

“It’s a new regime,” said Hideo Shimomura, the chief fund investor at Mitsubishi UFJ Kokusai Asset Management in Tokyo, which oversees about $118 billion.

Governor Haruhiko Kuroda’s decision eases one of the caps on long-term rates globally, after the BOJ’s record debt purchases sent Japanese 10-year yields to an all-time low of minus 0.3 percent in July. It also reinforces speculation central banks are starting to contemplate how effective their bond-buying programs known as quantitative easing have been in supporting their economies.

The U.S. 10-year note yield rose one basis point to 1.7 percent as of 8:17 a.m. in London, according to Bloomberg Bond Trader Data. The price of the 1.5 percent security due in August 2026 declined 1/8, or $1.25 per $1,000 face amount, to 98 5/32.

Japan’s 10-year yield climbed 3 1/2 basis points from Tuesday to minus 0.03 percent, after turning positive for the first time since March.

Bonds in the two nations also trimmed losses on speculation the policy will prevent yields from rising.

“The BOJ’s stance is not hawkish at all,” said Kei Katayama, a debt manager in Tokyo at Daiwa SB Investments, which has about $52.7 billion in assets. The new policy will provide both a cap and a floor for bonds, he said.

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