TOKYO: Japanese government bond yields tracked US yields lower on Tuesday after the Treasury Department said it would need to borrow less than previously estimated.
Two-year JGB yields received some upward pressure after an auction of the securities was met with lacklustre demand, but the effect was short-lived.
The 10-year JGB yield fell 1 basis point (bp) to 0.710%, after equivalent Treasury yields dropped about 7 bps overnight, and then ticked down another 3 bps in Asian hours on Tuesday to last stand around 4.06%.
The two-year JGB yield erased an earlier 0.5 bp decline to trade flat at 0.055% after Japan’s finance minister announced the results of the sale, but then ticked back down to 0.050%.
Tuesday’s tepid auction continues a series of poorly received JGB sales this month after the Bank of Japan signalled last week that it could exit negative short-term interest rate policy as early as March.
Amid that speculation, “there is a possibility that the JGB curve’s medium-term sector could steepen further, making it difficult to touch two-year JGBs at this juncture,” said Shoki Omori, chief Japan desk strategist at Mizuho Securities.
However, because investors had anticipated another weak result, the market impact was limited, Omori said.
Bets for near-term policy tightening propelled the 10-year JGB yield to a more than six-week high of 0.750% on Thursday, and Omori expects it could rise toward 1% in the coming weeks.
JGB yields rise amid caution over auctions this week
On Tuesday, the five-year JGB yield declined 0.5 bp to 0.295%.
The 20-year yield sank 1.5 bp to 1.530%, while the 30-year yield slipped 1 bp to 1.825%.
Benchmark 10-year JGB futures were last up 0.14 yen at 146.41. Bond yields move inversely to prices.
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