JGB yields rise: Japanese government bond (JGB) yields rebounded on Tuesday following the release of domestic inflation data that surpassed expectations. 

The benchmark 10-year JGB yield rose by 1 basis point to 0.695 per cent, while the two-year JGB yield edged up 1.5 bps to 0.170 per cent, its highest level since July 2011.

Despite Japan's core consumer inflation slowing for a third consecutive month in January, it still outpaced forecasts and maintained the central bank's 2 per cent target, with a 2.0 per cent increase compared to market expectations of a 1.8 per cent rise.

Ryutaro Kimura, fixed income strategist at AXA Investment Managers, noted that the latest inflation report has made market participants more cautious about the possibility of the negative interest rate policy being lifted at the March BOJ meeting.

However, investors are maintaining their bets that monetary policy will remain accommodative even after normalisation, given that the 10-year yield is still hovering around 0.7 per cent.

BOJ Governor Kazuo Ueda recently expressed the bank's expectation for a positive economic cycle in Japan, with higher job and wage growth leading to moderate inflation increases. Sources familiar with the BOJ's thinking suggest that the central bank is on track to exit from negative rates in the coming months.

In a separate development, Japan's finance ministry conducted its second-ever auction for sovereign climate transition bonds, this time for five-year transition bonds. The bid-to-cover ratio was 3.39, indicating solid demand, though slightly lower than the auction for standard five-year JGBs earlier this month, which had a bid-to-cover ratio of 3.44.

(with Reuters inputs)