July 23, 2018 / 7:19 AM / a month ago

UPDATE 3-German 10-year bond yield hits one-month high after Japanese yields jump

* 10-year JGB yields hit 6-month high on talk of BOJ tweaks

* European, US bond yields dragged up

* German Bund yield at 1-month high

* S&P upgrades Greece’s outlook (Updates prices)

By Dhara Ranasinghe

LONDON, July 23 (Reuters) - Germany’s 10-year bond yield rose to its highest level in just over a month on Monday, following a jump in Japanese government bond yields on reports that the Bank of Japan was debating moves to scale back its massive monetary stimulus.

Japan’s 10-year yield rose to a six-month high at 0.090 percent after sources told Reuters on Friday the BOJ was holding preliminary discussions on possible changes to its monetary policy.

These included adjustments to interest-rate targets and stock-buying techniques and a focus on ways to make the massive stimulus programme more sustainable.

The rare jump in Japanese yields, which were set for their biggest one-day rise in almost two years, set the tone for other major bond markets.

Across the euro zone, most 10-year bond yields were up 3-4 basis points on the day . Germany’s 10-year bond yield rose to 0.40 percent, its highest level in over a month.

Italian 10-year yields, which are particularly sensitive at the moment because of political concerns there, were up over 6 bps at 2.645 percent.

U.S. 10-year Treasury yields touched five-week highs at 2.95 percent.

“This story has got a lot of interest over the weekend, so it looks like investors are actively getting interested in what it means for JGBs,” said Peter Chatwell, head of rates strategy at Mizuho in London. “The idea that the BOJ would want to review policy, we take seriously, but this has been ongoing for some time.”

Shifting market views on Japanese policy come as other major central banks move away from low interest rates.

The U.S. Federal Reserve is in the midst of monetary policy tightening and the European Central Bank is set to end its massive stimulus scheme by the end of this year.

The ECB meets on Thursday and is likely to be pressed for more details on its plans.

Still, analysts said some caution was warranted when it came to potential shifts in BOJ policy given tepid inflation.

Japan’s inflation is seen as unlikely to reach the BOJ’s 2 percent target even after the central bank, which frequently buys more JGBs than the government issues, soaks up more than 40 percent of outstanding government debt.

“I wouldn’t expect a complete shift away from what we have at the moment because there’s still a way to go on the inflation front and there are challenges to the economy,” said Investec economist Victoria Clarke.

Greek 10-year bond yields inched towards their lowest level since the end of April at 3.84 percent after S&P Global Ratings raised its outlook on Greece on Friday to positive from stable while affirming its B-plus/B ratings.

Last month, S&P raised its long-term debt rating on Greece. The country is due to exit its third international bailout next month.

Reporting by Dhara Ranasinghe; editing by John Stonestreet and David Stamp

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