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[TOKYO] Japanese government bond yields hit multi-month highs on Thursday, edging near the levels at which the Bank of Japan intervened in the market earlier, on rising expectations of tighter monetary policies globally.
While few market players expect the BOJ to follow the European Central Bank and a couple of others in winding back its easy policy stance, rising bond yields in the West put pressure on Japanese bonds as they make JGBs relatively less attractive.
The benchmark 10-year yield, which the BOJ is trying to keep "around zero per cent", rose to 0.100 per cent, up 2.0 basis points on the day and its highest level since February.
That was just 1.0 basis point from 0.110 per cent, where, on Feb 3, the BOJ offered to buy an unlimited amount of 10-year bonds to stop the rise in their yields.
That operation - to buy bonds at a specific yield - is different from the BOJ's regular bond purchases and is the most powerful tool the central bank has now to control the market.
"The market is trying to test the BOJ's stance," said Tadashi Matsukawa, head of fixed income investment at PineBridge Investments in Tokyo.
For now, expectations that the BOJ would step in again if the yield climbs to the BOJ's previous defence line are keeping further rises in check.
"I suspect the market tends to believe that the BOJ will defend the 0.11 per cent level. If the BOJ does not do so even if it hit that level, that's a bit scary. The yields will likely spike, probably forcing the BOJ to do a fixed rate operation later," said Yusuke Ikawa, strategist at BNP Paribas.
The 10-year JGB futures price dropped 0.17 point to 149.81. The contract has lost 0.63 point over the past five sessions, its biggest five-day fall since November.
The auction of 30-year JGBs held on Thursday attracted decent demand but that was not enough to change the sentiment as investors fret that a stronger reading in Friday's US payrolls data could boost bond yields globally, including in Japan.
"I've bought back bonds today after having sold them quite a lot last week. But I'm still not comfortable going long, given we have big data such as US job reports," Mr Matsukawa at PineBridge added.
The 30-year yield rose 3.5 basis points to 0.900 per cent, a 4-1/2-month high.
The 20-year yield rose 1.5 basis points to a three-month high of 0.615 per cent, although there was some bargain-hunting in that maturity.
The five-year yield rose 2.0 basis points to minus 0.040 per cent, matching the defence line the BOJ drew in November when it offered to buy them at that yield.
The BOJ has scheduled its next regular purchase of 5-10 year JGBs on Friday. Some market players expect the central bank will increase its purchase from the regular amount of 450 billion yen.