JGBs rally; biggest rise in 5-year yield in a decade

Credit: REUTERS/Florence Lo

By Brigid Riley

TOKYO, Dec 7 (Reuters) - Japanese government bonds (JGB) rallied on Thursday, with the largest selloff of five-year bonds in a decade, as a 30-year bond auction saw the weakest in years.

Yields, which move inversely to bond prices, jumped from multi-month lows touched the previous day as investors sold off bonds.

The five-year yield JP5YTN=JBTC was 10.5 basis points (bps) higher at 0.340%, the biggest increase in a single day since April 2013.

The 10-year JGB yield JP10YTN=JBTC rose 10.5 bps to 0.750%, the largest move in almost a year.

The moves in the bond market were enough to buoy the Japanese yen JPY=EBS to a three-month high of 145.07 against the dollar.

The 30-year JGB yield JP30YTN=JBTC, meanwhile, rose 9.5 bps to 1.690%, ticking up from 1.610% after the auction results for the bond showed poor demand.

The bid-to-cover ratio, which compares total bids to the amount of securities sold, was the lowest since 2015 at 2.62.

The tail - the difference between the lowest bid and the average bid - was 1.2 yen, the longest on record.

After yields have dropped as sharply as they have, investors were likely to be taking a "wait-and-see" approach, with 30-year JGB yields around the 1.7% level a more appealing range, said Okasan Securities Senior Bond Strategist Makoto Suzuki.

The 20-year JGB yield JP20YTN=JBTC jumped 11.5 bps to 1.490%.

On the short end, the two-year JGB yield JP2YTN=JBTC ticked up 5 bps to 0.085%, while the five-year yield JP5YTN=JBTC was 9.5 bps higher at 0.340%.

There was also some caution about when the Federal Reserve would begin cutting rates and how that could impact the BOJ's timeline to exit from its ultra-loose monetary policy, Suzuki said.

Markets were currently pricing in about a 50% chance of a Fed rate cut as early as March, according to the CME's FedWatch tool.

BOJ Governor Kazuo Ueda said on Thursday the central bank will face an "even more challenging" situation in the year-end and the start of next year, when asked about the economy and monetary policy guidance.

The 40-year JGB yield JP40YTN=JBTC rose 9 bps to 1.925%.

(Reporting by Brigid Riley; Editing by Mrigank Dhaniwala and Angus MacSwan)

((brigid.riley@thomsonreuters.com;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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