JGBs rally on receding rate hike expectations
By Shinichi Saoshiro
TOKYO, June 18 (Reuters) - Japanese government bond futures rallied on Wednesday, lifted by receding expectations for aggressive interest rate hikes in the United States and Europe.
Hawkish remarks by U.S. and European central bank officials earlier this month roiled JGBs, as they were seen leading to a potential rate hike by the Bank of Japan later this year.
As a result, the lead 10-year JGB futures contract slid to an 11-month low last week.
But recent comments by U.S. and European central bankers toning down their hawkish rhetoric, in addition to a neutral stance by the BOJ late last week on monetary policy, have triggered a JGB rebound.
"Remarks pointing to rate hikes in Europe and the United States caught the JGB market off guard last week, so buyers are feeling slightly more assured after the recent string of events," said Atsushi Ito, a fixed-income strategist at Morgan Stanley.
On Tuesday, the Wall Street Journal said the Fed is unlikely to hike rates in the next few months unless the inflation outlook worsens.
Separately, the Financial Times said on Tuesday that expectations for the Fed to raise rates three or four times by the end of the year do not seem to match the balance of views within the U.S. central bank.
Meanwhile, ECB Executive Board member Lorenzo Bini Smaghi said in an interview with Italian daily Il Sole 24 Ore published on Tuesday that a quarter percentage point hike in the ECB's key interest rate should be enough to bring euro zone inflation back below 2.0 percent. [ID:nL17725260]
September 10-year futures jumped 0.72 point to 133.87 2JGBv1. Late last week, the lead contract fell as low as 132.05, its lowest since July last year.
The benchmark 10-year yield was down 6 basis points at 1.775 percent JP10YTN=JBTC, sliding more than 10 basis points from an 11-month peak of 1.895 percent hit on Monday.
The five-year yield plunged 7.5 basis points to 1.350 percent, 20.5 basis points below an 11-month high of 1.555 percent reached late last week. (Editing by Michael Watson)
