Japanese bond yields climb with US peers as Fed cut bets pushed back

JGB yields surge: Japanese government bond (JGB) yields saw a rise on Tuesday, with the two-year yield hitting its highest point since 2009, mirroring the trend in the US market. This followed strong retail sales figures, reinforcing the belief that the Federal Reserve will not rush to implement interest rate cuts this year.

The two-year JGB yield reached 0.275 per cent, marking a 14-and-1/2-year high with an increase of 0.5 basis points (bp).

The five-year yield climbed 1.5 bps to 0.495 per cent, hitting a 13-year peak.

Meanwhile, the 10-year yield rose by 0.5 bp to reach a five-month high at 0.865 per cent.

US treasury highs

Corresponding US Treasury yields stood at 4.6139 per cent in Asian trading, having peaked at 4.6630 per cent overnight, also reaching a five-month high.

The release of better-than-expected US retail sales data, coupled with strong consumer price figures from the previous week, suggests that inflation remains a concern.

Market futures now indicate a reduction of 41 basis points in Fed rate cuts by the end of December, down from over 160 basis points expected at the beginning of the year.

BOJ's hike hesitation

In contrast, the Bank of Japan (BOJ) raised rates for the first time since 2007 last month, but policymakers have signalled that they are in no rush to implement further hikes.

According to Shinichiro Kadota, chief Japan FX strategist at Barclays, the focus is currently on global factors as investors await the BOJ's next move. He anticipates the possibility of increased demand due to the elevated levels of Japanese yields, but suggests that the risk remains skewed towards further increases.

The 20-year JGB yield rose by 0.5 bp to 1.640 per cent, while the 30-year yield added 1 bp to 1.920 per cent.

Benchmark 10-year JGB futures fell by 0.15 yen to 144.26 yen, hitting their lowest point since November 2 at 144.12 yen. Notably, bond yields decrease when prices rise.

​(With Reuters Inputs)