March 4, 2020 / 6:48 AM / a month ago

JGBs jump, short-term yields hit multi-month low after Fed rate cut

TOKYO, March 4 (Reuters) - Japanese government bond prices gained on Wednesday, following in the footsteps of U.S. bonds after the Federal Reserve’s emergency rate cut to shield the American economy from the impact of the coronavirus.

Short-term yields dropped the most, steepening the yield curve, on speculation that the Bank of Japan could cut interest rates further even though many investors expect the central bank to think better of such a move given its side-effects.

Benchmark 10-year JGB futures rose 0.39 point to 154.15, briefly hitting a four-month intraday high of 154.44.

The yield on the benchmark 10-year cash JGB fell 3 basis points to minus 0.145%, while the 20-year JGB yield fell 1.5 basis points to 0.170%.

The 30-year JGB yield fell 1 basis point to 0.305%.

The market’s rally came as U.S. Treasuries soared, sending the 10-year yield to record low of 0.906% after the Fed cut its interest rates target by 0.50 percentage point to 1.0-1.25%.

The Fed’s first inter-meeting easing in more than a decade, however, has failed to lift U.S. stock prices, prompting Fed funds futures to quickly price in another 0.25 percentage point at the next scheduled meeting on March 17-18.

Sharp falls in U.S. interest rates raised speculation the BOJ could cut its interest rates, now at minus 0.10% deeper into negative.

The two-year JGB yield fell 3.5 basis points to minus 0.285%, falling to as low as minus 0.300% at one point, its lowest since mid-October.

The five-year yield fell 3.5 basis points to minus 0.270%, having touched a four-month low of minus 0.305% earlier in the day.

Still many investors doubt the BOJ will take such an action because negative interest rates have done already considerable damage on the country’s interest earners such as bans, insurers and pension funds.

Thus most investors think the BOJ to increase asset purchase or fund injections, should it feel the need to increase its support for the economy.

Still, at its bond purchase operation on Wednesday, it maintained the size of its bond buying in short maturities unchanged from previous operations.

The BOJ also refrained from pumping additional liquidity through reverse bond repo purchase, a step it did over the last two days. (Reporting by Tokyo Markets Team; Editing by Maju Samuel)

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