Bond traders eye further increase in benchmark Japanese bond yields

BOND traders are on guard for a further five-basis-points increase in benchmark Japanese bond yields amid speculation that it would trigger another foray into the market by the central bank.

The yield on 10-year government notes has already climbed about 20 basis points to a nine-year high of 0.655 per cent since July 27, the day before the Bank of Japan adjusted policy to allow the rate to increase to as high as 1 per cent. The benchmark yield was unchanged at 0.645 per cent at 9:52 am on Friday (Aug 4).

The moves come amid upward pressure on rates globally, with long-term US yields surging to their highest since November as the Treasury market comes close to erasing this year’s gains.

In Japan, the question is how far and how fast the BOJ will let rates rise under its tweak to yield-curve control. The central bank came in around 0.6 per cent on Monday and as 0.65 per cent was breached on Thursday.

“The BOJ may kick in as yields rise about five basis points higher than the previous unscheduled operation,” said Shoki Omori, chief desk strategist at Mizuho Securities Co. “They kicked in because they wanted to show they are watching the whole curve and show YCC is alive.”

Continued upticks in Japanese yields are also being watched because any rise in yields at home adds incentives for Japanese investors to bring more of their funds back home. The nation’s life insurers and pension funds are owners of vast amounts everything from Treasuries to sovereign bonds in Europe and Australia. 

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Fukoku Mutual Life Insurance Co, with US$62 billion of assets, said it anticipated a policy adjustment and already had plans in place to reduce its holdings of overseas debt. BLOOMBERG