Japan leads global bond markets lower as inflation fears rise

[TOKYO] Japan’s government bonds slumped, leading a global sell-off as rising oil fuelled inflation fears and pushed yields to levels unseen in decades.

The nation’s 30-year rate surged 20 basis points, the highest since the tenor’s debut in 1999. Yields on 10- and 20-year debt each rose about 10 basis points to their highest since 1996 as a month-long rout gathered pace. Five-year yields climbed as well as investors awaited the results of an auction of the notes at 12.35 pm in Tokyo on Monday (May 18).

Concerns of extra debt issuance also weighed on the market. Prime Minister Sanae Takaichi is set to announce plans soon to compile an extra budget in response to rising commodity prices driven by the ongoing Middle East conflict, according to people familiar with the matter.

On Friday, Finance Minister Satsuki Katayama reiterated that the government saw no immediate need for an extra budget, attributing the recent rise in yields partly to global market trends.

“Global yields are rising sharply, and there is nothing at the moment to change the market mood from late last week when bonds were sold off on concerns over inflation and fiscal expansion,” said Keisuke Tsuruta, a senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities.

Finance Minister Katayama said on Friday that Group of Seven officials are expected to talk about developments in bond markets at their May 18 to 19 gathering in Paris.

SEE ALSO

BOJ warns of financial system risks from investment fund activity

Yen’s week-long slide puts traders on guard for intervention

Ex-BOJ chief Kuroda sees yen intervention impact as short-lived

BOJ’s policy rate likely to reach 2% by end-2027, OECD says

More

DECODING ASIA

Navigate Asia in
a new global order

Get the insights delivered to your inbox.

The slide in the yen is adding to inflation risks and weighing on bonds as pressure mounts for the Bank of Japan (BOJ) to raise rates. Overnight index swaps show about a 78 per cent chance of a rate hike at the BOJ’s June meeting.

“In addition to growing concerns over the government compiling a supplementary budget, there is a strong perception that the BOJ is reluctant to raise rates, heightening fears that it’s falling behind the curve in responding to inflation,” said Shuichi Ohsaki, a senior portfolio manager at Meiji Yasuda Asset Management.

“Clear communication from the government on both fiscal and monetary policy will be necessary to halt the rise in interest rates,” Ohsaki said. BLOOMBERG