JGB returns mixed with US peers rise, investors try to find footing -November 16, 2023 at 6:23 am

Japanese government bond yields (JGBs) were mixed on Thursday, while US government bond yields rose from a two-month low and investors adjusted after Japanese government bond yields fell in the previous session.

The yield on 10-year Japanese government bonds fell 0.5 basis points to 0.790%, after reaching the lowest level since October 17 the previous day.

Meanwhile, the yield on 30-year Japanese government bonds rose to 1.735%, but closed 1 basis point higher at 1.710%.

US Treasury yields rebounded overnight despite signs of slowing US inflation after a revised September retail sales showed a strong increase. The benchmark 10-year interest rate was around 4.50% in Asian hours.

Takeshi Ishida, a strategist at Resona Holdings, said that even with the ups and downs in U.S. Treasury yields, which is what Japanese government bonds react to, “Japanese yields were down a lot (on Wednesday), so I think there is a little bit of an adjustment reaction that… It is happening”.

Yields on Japanese government bonds fell sharply across all maturities on Wednesday, tracking a decline in their US peers, while at the same time the Bank of Japan reduced the amounts it offers for its regular purchases of Japanese government bonds.

The yield on 20-year Japanese government bonds rose by one basis point to 1.515%.

On the short side, the yield on two-year Japanese government bonds fell 0.5 basis points to 0.055%.

Japan’s disappointing GDP data could also create some uncertainty among investors about the Bank of Japan’s timeline for exiting its ultra-loose monetary policy, according to strategists.

The country’s economy contracted from July to September, ending two consecutive quarters of growth due to weak consumption and exports, data showed on Wednesday.

Ryutaro Kimura, fixed income strategist at AXA Investment Managers, said the latest GDP data “underscores persistent challenges,” “casting doubt on the Bank of Japan’s scenario of achieving its inflation target through a positive inflation cycle and wage growth.”

Expectations are growing that the Bank of Japan may end negative interest rates at some point early next year, with the recent adjustment of the yield curve at its October policy meeting seen as a small step towards that goal. (Reporting by Brigid Reilly, Editing by Faron Hong Kong)