TOKYO, Jan 26 (Reuters) - Japanese government bonds sank on Thursday, with superlong yields rising to their highest levels since early last year, as investors pondered whether this week’s rising yields would prompt the Bank of Japan to adjust its bond-buying operations.
The 10-year JGB yield added 2 basis points (bps) to 0.085 percent, its highest since Dec. 16, while 10-year JGB futures slipped 0.24 point to 149.84.
The 20-year yield rose 3.5 bps to 0.660 percent , its highest since February, while the 30-year yield also rose 3.5 bps to 0.840 percent, its highest since March.
The yield on the relatively illiquid 40-year JGB also rose to its highest level since February 2016, adding 4.5 bps to 1 percent.
On Wednesday, the benchmark U.S. Treasury yield hit four-week highs as stocks rallied on Wall Street amid investor optimism about the economy and the policies of the administration of President Donald Trump.
But the biggest cloud over the bond market on Thursday was investors’ uncertainty about the BOJ’s intentions, after the central bank stunned the market a day earlier by refraining from offering to buy JGBs in the 1- to 5-year zone. It also did not increase its purchases in the superlong zone, as some dealers had hoped.
“I don’t know what the BOJ is trying to do - whether they want to control the yield curve, or throw away that concept,” said Tadashi Matsukawa, head of fixed income investment at PineBridge Investments in Tokyo.
The BOJ introduced a policy in September of controlling the yield curve, guiding the 10-year yield to around zero percent to keep down short- to medium-term borrowing costs while allowing super-long yields to rise.
While some of the upward move in JGB yields is due to external factors such as rising Treasury yields, “yesterday’s moves were BOJ-driven, because they didn’t come in and buy as expected,” Matsukawa said.
“This is awkward timing, because they pre-announce what they want to do, but it seems they’re moving ahead of any announcement, so it’s difficult for the market to digest,” he said.
As the BOJ typically refrains from buying operations on days when the Ministry of Finance holds bond auctions, investors next expect the central bank to purchase JGBs on Friday.
The five-year JGB yield rose 2 bps to minus 0.090 percent after earlier reaching as high as minus 0.085 percent, its highest since Dec. 28, while the two-year JGB yield climbed 1 bp to minus 0.210 percent, after earlier rising to minus 0.190 percent, its highest since Jan. 4. (Reporting by Tokyo markets team; Editing by Richard Borsuk)
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