JGB yields soften after Bank of Japan operations
JAPANESE long-term bond yields came off their highs on Friday (Dec 30) after the central bank carried out special bond purchase operations for a third consecutive day, and as dollar yields too dipped in thin trading on the final working day of the year.
The yield on 20-year notes dropped to 1.28 per cent, retreating from the previous session’s 1.32 per cent, its highest level since October 2014.
Yields have nearly trebled this year.
Yields across the bond curve have been rising since the Bank of Japan (BOJ) surprised markets last week by raising the cap on 10-year bond yields to 0.5 per cent from 0.25 per cent. The BOJ’s emergency bond-buying operations for shorter-term notes earlier this week couldn’t temper that selling.
On Friday, it announced an extraordinary JGB-buying operation for the third consecutive day, with super long-term bonds included.
Those operations were in addition to the central bank’s daily offers to buy unlimited amounts of bonds with 10-year maturities.
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The BOJ also announced a day earlier that it will hold a two-year pooled collateral operation, aimed at supplying financial firms with easy cash, amounting to US$7.54 billion at a zero per cent interest rate on Jan 4.
Traders said the market response to these measures was sluggish, given thinned year-end trading.
For the yen’s interest rate to fall significantly, it is necessary for overseas interest rates to fall, said Shinsuke Kajita, chief strategist at Resona Holdings.
The two-year JGB yield, which turned positive for the first time in seven years last week, hit 0.038 per cent, just off Thursday’s 0.045 per cent – its highest level since March 2015.
Ten-year JGB yield was down 3.5 basis points at 0.41 per cent, while 10-year interest rate swaps straddled 0.9 per cent.
The five-year yield was also lower at 0.22 per cent. REUTERS
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