JGB yields surge to six-week high on speculation of BOJ stimulus exit

Japanese government bond (JGB) yields surged to a six-week high as investors adjusted their positions in anticipation of a potential end to the Bank of Japan's (BOJ) stimulus measures. The 10-year JGB yield rose by 2.5 basis points to 0.740 per cent, reaching its highest level since December 12. This uptick followed BOJ's decision to maintain stimulus settings, but market sentiment shifted after BOJ Chief Kazuo Ueda hinted at a gradual withdrawal from the negative interest-rate policy.

Shoki Omori, Chief Japan Desk Strategist at Mizuho Securities, noted that Ueda's comments created uncertainty, as it remains unclear whether interest rate hikes will continue after the removal of the negative interest-rate policy. Investors are reportedly eyeing a potential increase in 10-year yields to 1 per cent, but the market is grappling with determining the appropriate levels for 2- and 5-year yields.

The five-year JGB yield rose by 0.5 basis points to 0.315 per cent, its highest level since December 12, while the two-year yield eased slightly to 0.060 per cent, retracting from Wednesday's one-month peak of 0.065 per cent. Japanese yields faced additional upward pressure due to the overnight climb in US Treasury yields.

Simultaneously, a series of lackluster JGB auctions persisted, with the finance ministry's 40-year bond sale experiencing the lowest demand since August 2011, based on the bid-to-cover ratio. Consequently, the 40-year JGB yield increased by 2.5 basis points to 2.095 per cent, reaching its highest level since November 2. The 20-year yield surged by 4 basis points to 1.550 per cent, and the 30-year yield added 2 basis points to 1.825 per cent.

In the futures market, benchmark 10-year JGB futures declined by 0.17 yen to 145.99, reflecting the evolving dynamics in the bond market.

(With Reuters inputs)