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Japanese government bond prices end mixed

Tokyo

JAPANESE government bond prices were mixed on Tuesday, with the two-year yield hitting a 16-month high on receding expectations of a near-term Bank of Japan rate cut before solid bond auction results helped to curb losses in the market.

Benchmark 10-year JGB futures rose 0.11 point to 151.88 by late afternoon trade after opening 0.07 point lower.

In the cash bond market, the 10-year JGB yield was flat at 0.005 per cent, just below the 91/2-month high of 0.010 per cent touched last week.

JGB yields have been gradually rising in recent months on signs the global economy is bottoming out and hopes Washington and Beijing will sign a trade deal soon.

The two-year JGB yield rose 0.5 basis point to minus 0.095 per cent, its highest since August last year, as traders hesitated to buy ahead of an auction of 2.0 trillion yen (S$24.78 billion) worth of two-year JGBs.

But the auction saw decent demand, with the tail shrinking to 0.005 from 0.011 in the previous auction. The bid-to-cover ratio rose to 4.69 from 4.13. The average yield was minus 0.098 per cent, the highest since January 2016. The rising yield reflects fading expectations of a rate cut by the Bank of Japan.

The one-year overnight indexed swap rate rose to -0.063 per cent, almost flat from the one-month rate and just below the current overnight call rate, suggesting investors have completely wiped out rate-cut expectations.

Just two months ago, a cut of at least 10 basis points was fully priced in. But the Swedish central bank's move to end its five-year experiment with negative interest rates fuelled speculation negative rates will no longer be popular among policymakers.

At the longer end of the market, the 20-year JGB yield rose 0.5 bp to 0.315 per cent. The 30-year yield rose 0.5 bp to 0.445 per cent, while the 40-year yield was flat at 0.460 per cent. The five-year yield fell 0.5 bp to minus 0.090 per cent, helped by short-covering in the futures after the two-year auction. REUTERS