JGB yields rise after sharp declines, with 5-year auction in sight
TLT•JGB yields rebound ahead of five-year auction
Japanese government bond (JGB) yields rose on Monday, rebounding from sharp declines in previous sessions, as investors weighed an upcoming five-year bond auction.
The 20-year JGB yield JP20YTN=JBTC rose 3.5 basis points (bps) to 3.74%. The 30-year yield JP30YTN=JBTC rose 4.5 bps to 4.010%.
The 10-year JGB yield JP10YTN=JBTC rose 2.5 bps to 2.93%. Yields move inversely to bond prices.
Shorter-dated yields and swap rates move higher
The one-month forward overnight swap rate starting in two years hovered at 2.3% on Monday, after rising to a record high of 2.52% last week.
The two-year yield JP2YTN=JBTC rose 1.5 bps to 1.84%. The five-year yield JP5YTN=JBTC rose 2 bps to 2.245%.
Markets have almost fully priced in a 25 bps hike in the BOJ's policy rate to 1.25% at its meeting next week, according to money market broker Tokyo Tanshi. They have also fully priced in another rate hike to 1.5% by the central bank's January meeting.
Market focus on BOJ tightening and rate expectations
"The market weighs the five-year bond auction in the next session, and the U.S. Treasury yields may rise next week as there will be some large corporate bond sales," said Takashi Fujiwara, chief fund manager at Resona Asset Management’s fixed income investment division.
Yields on super long bonds fell sharply last week as investors unwound curve-steepening trades. Inflation worries receded as the yen strengthened, while expectations for aggressive rate hikes by the Bank of Japan grew.
"The markets seem to be gaining a clearer picture of how far the BOJ will continue to raise interest rates," said Fujiwara.
