Japan's 5-year bond yield falls after BOJ announces loan offer

THE yield on five-year Japanese government bonds (JGBs) fell on Friday (Feb 10), after the Bank of Japan (BOJ) said it would provide loans with the same maturity to banks. The move is intended to contain elevated yields.

The five-year yield fell 0.5 basis points (bps) to 0.195 per cent.

The BOJ said it would extend five-year loans against collateral to financial institutions for the third time since January. Details of the loans will be announced on Tuesday.

Last month, the BOJ amended the rules for the funds-supply operation, so it can pump funds over an extended period of 10 years to financial institutions against collateral. 

But market participants say the measure’s effect will be limited, and may not be sustainable.

“I am not sure how many more times the BOJ can conduct such operations,” said Kazuhiko Sano, a strategist at Tokai Tokyo Securities.

“Because, in part, it is difficult for financial institutions to secure collateral as they need collateral for BOJ’s other operations, such as bond lending.”

The BOJ last conducted such an operation on Jan 31, after the five-year yield hit 0.2 per cent.

The two-year JGB yield fell 0.5 bps to minus 0.045 per cent, while the 10-year JGB yield was flat at 0.49 per cent.

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Yields on super-long notes tracked US Treasury yields to rise, with the 20-year JGB yield increasing by 1.5 bps to 1.325 per cent, and the 30-year JGB yield climbing 2 bps to 1.55 per cent.

The 40-year JGB yield rose 2 bps to 1.79 per cent.

Benchmark 10-year JGB futures fell 17 yen to 146.52, with a trading volume of 8,442 lots. REUTERS