Japan’s 20-yr bond yield hits multi-year high as BOJ struggles against upward pressure

Japan's 20-yr bond yield hits multi-year high as BOJ struggles against upward pressure
FILE PHOTO: A Japan yen note is seen in this illustration photo taken June 1, 2017. REUTERS/Thomas White/Illustration

TOKYO : Japan’s 20-year government bond yield hit a near eight-year high on Thursday, as Bank of Japan (BOJ) emergency bond buying operations for shorter term notes failed to contain the upward pressure.

The yield of 20-year notes jumped 5 basis points to 1.320 per cent, its highest level since October 2014.

Yields across the curve have been rising since the BOJ surprised the market last week by raising the cap on 10-year bond yield to 0.5 per cent from 0.25 per cent.

“The allowance of the wider band for 10-year notes only fuelled speculation on the Bank of Japan’s further actions, which is driving the sell-off,” said Kazuhiko Sano, a strategist at Tokai Tokyo Securities.

The rise in the 20-year bond yield has put more upward pressure on the 10-year bond yield, Sano said.

After the emergency bond buying failed to contain elevated yields, the BOJ announced it would offer 1 trillion yen ($7.48 billion) of funds to the market with zero interest rate for two years on Jan. 4.

The move was aimed at encouraging investors to buy two-year notes, said Keisuke Tsuruta, fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities.

The two-year JGB yield, which turned positive for the first time in seven years last week, was at 0.045 per cent, its highest level since March 2015, before falling to 0.035 per cent.

“The BOJ is struggling to contain yields since it made a tweak in its ultra-low rate policy,” Tsuruta said.

Earlier in the day, the BOJ conducted unscheduled bond buying, targeting securities with one- to 10-year maturities. Later, it conducted a similar operation for bonds with five- to 10-year maturities.

The bank also offered to buy unlimited amounts of bonds with two- and five-year maturities for a second straight session.

Those operations were in addition to the central bank’s daily offers to buy unlimited amounts of bonds with 10-year maturities.

But yields rose, with the 10-year JGB yield rising 0.5 basis point to 0.455 per cent. The 10-year notes to be issued next month carried 0.495 per cent yield in the so-called when-issued market.

The 30-year JGB yield climbed 4.5 basis points to 1.615 per cent. The 40-year JGB yield jumped 6.5 basis points to 1.860 per cent.

The five-year yield was flat at 0.240 per cent.

($1 = 133.7000 yen)



Source: Reuters