JGB yields track US peers lower as traders eye super-sized Fed rate cut

Japanese government bond yields sank on Thursday, tracking declines in US Treasury yields after more soft economic data stoked bets the Federal Reserve may cut interest rates by a super-sized 50 basis points (bps) this month.

The 10-year JGB yield dropped 2 bps to 0.865 per cent as of 0441 GMT, after dipping to a two-week low of 0.860 per cent earlier in the session.

Benchmark 10-year JGB futures rose 0.1 yen to 144.92 yen after earlier touching 145.15 yen for the first time since Aug. 16. Bond yields move inversely to prices.

The equivalent-maturity US yields sagged 7.6 bps overnight and continued their decline in Asian time to as low as 3.75 per cent, a one-month trough.

Data released on Wednesday showed US job openings dropped to a 3-1/2-year low in July, spurring traders to ramp up odds of a half-point Fed reduction on Sept. 18 to 45 per cent, from 38 per cent a day earlier, according to the CME Group's FedWatch Tool.

The market is now bracing for weekly US jobless claims data later on Thursday, ahead of all-important monthly payrolls figures on Friday.

"Sentiment-wise, it's just risk-off," said Shoki Omori, chief Japan desk strategist at Mizuho Securities, pointing to heightened demand for bonds amid a sell-off in global equities.

"It's not like people want to trade aggressively - it's more defensive," he added. "People are just trying to prepare their positions for Friday."

While Omori expects the Fed to opt for a 25-bp reduction this month, as "the US economy is still OK," if equities continue to dive, it could push 10-year JGB yields to 0.82 per cent.

The 30-year JGB yield declined 2 bps to 2.045 per cent, with analysts describing the results of an auction of the bonds on Thursday as decent.

The 20-year JGB yield lost 1.5 bps to 1.680 per cent. The five-year yield edged down 0.5 bp to 0.50 per cent, while the two-year yield was flat at 0.37 per cent.