By Satoshi Sugiyama
TOKYO, July 9 (Reuters) – The benchmark 10-year Japanese government bond yield hit a 30-year high on Thursday, driven by concerns over inflation from renewed tensions in the Middle East and Japan’s fiscal health, while a five-year JGB auction was relatively firm as expected.
The 10-year JGB yield rose 3.5 basis points to 2.900%, the highest since September 1996. It also marked its ninth straight day of gains, the longest streak in 19 years. Yields move inversely to bond prices.
Analysts saw the outcome of five-year note auction as moderately firm. The auction’s bid-to-cover ratio, a measure of demand, was 3.43 times, compared with 3.11 times at the previous sale.
“When yields are up across the curve, investors want to buy shorter-dated bonds to avoid risks,” said Miki Den, the senior Japan rate strategist at SMBC Nikko Securities.
“But the level of the yield on the five-year bonds is not high enough given ongoing inflation. That capped demand for the auction,” he added.
The five-year yield rose 0.5 bps to 1.990%, easing slightly after the auction. The two-year yield, the one most sensitive to the Bank of Japan’s policy rates, increased 1.5 bps to 1.445%.
Oil prices jumped more than 1% after U.S. President Donald Trump said he thought a tentative deal to end the war with Iran was over, pushing U.S. Treasury yields to a multi-week high.
Longer-dated JGBs, more sensitive to inflation and fiscal-risk premiums, came under pressure. The 20-year JGB yield climbed 2 bps to 3.890%. The 30-year yield added 3 bps to 4.030%. The yield on the 40-year JGB, Japan’s longest tenor, rose 5 bps to 4.055%.
JGB yields have risen since the government outlined large spending plans in the policy blueprint last month. The blueprint called on the BOJ to align monetary policy with growth efforts, fuelling concerns the government could pressure the central bank to keep interest rates low and risk falling behind the curve as inflationary pressures build.
Tokyo is considering revising language on monetary policy in the economic blueprint, a draft obtained by Reuters showed.
The gap between 10-year and 2-year JGB yields widened on Wednesday to 143 bps, the highest since 2004, reflecting growing concerns about inflation and price risk on the long end along with shrinking expectations for BOJ rate hikes on the short end.
($1 = 162.5500 yen)
(Reporting by Satoshi Sugiyama; Additional reporting by Junko Fujita Editing by Shri Navaratnam and Sonia Cheema)
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