TOKYO: Japanese 30-year government bond yields climbed to a record high on Tuesday, as speculation grew that the Bank of Japan (BOJ) might raise interest rates as soon as this month.
The 20-year JGB yield leapt to a 26-year high, while the 10-year yield reached a 17-year top before retreating in the wake of solid demand at an auction of the notes.
Bond yields rise when prices fall.
Yields had surged on Monday in the heaviest bond selloff in four months after BOJ Governor Kazuo Ueda said in a speech that policymakers would consider the “pros and cons” of a December rate hike, sending the strongest signal yet of near-term policy tightening.
“Since it is unusual for the BOJ governor to refer to a specific meeting in such a speech, we believe the likelihood of a December rate hike has further increased,” Morgan Stanley MUFG Securities analysts said in a client note.
“A December rate hike is our base case.”
Overnight Index Swaps (OIS) on Tuesday indicated about a 71% chance of the BOJ raising rates by a quarter point to 0.75% at its meeting on December 18-19.
Ueda also said in a Q&A session after his speech that he had “good discussions” with Prime Minister Sanae Takaichi, which investors took as an indication that the new premier won’t stand in the way of higher rates despite previously expressing a preference for easy policy.
Even so, investors will be cautious to hunt for bargains because “you don’t want to be catching a falling knife,” Rodrigo Catril, a senior FX strategist at National Australia Bank, said in a podcast.
“So, investors are not going to buy into something when yields are rising. You get into that market when you think you’ve reached that peak,” Catril said.
The 30-year JGB yield jumped as much as 2 basis points (bps) to an unprecedented 3.41%, while the 20-year yield climbed as much as 1.5 bps to 2.905%, the highest since June 1999.
The 10-year yield added 0.5 bp to 1.88%, the highest since June 2008, before easing back to 1.865%.
With 10-year yields extremely elevated, “the issue appeared relatively inexpensive, which likely drew demand from a wide range of investors,” Shoki Omori, chief desk strategist at Mizuho Securities, said of the auction.
“The auction result appears to have provided a measure of reassurance to the market.”
The five-year yield was unchanged at the June 2008 peak of 1.38% reached on Monday.
The two-year yield edged down 0.5 bp to 1.015% from Monday’s June 2008 high of 1.02%.
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