Japan’s Benchmark Bond Yield Reaches Highest Level Since 1996
Synopsis
Higher oil prices and concerns over Japan's fiscal position pushed the 10-year government bond yield to a 30-year high.
Key Insights
- Japan benchmark 10-year JGB yield rises to a 30-year high of 2.880%.
- Bond yields hit higher after rising oil prices and Japanese fiscal concerns.
- Investors are also looking closely at the government’s planned spending and future monetary policy.
The 10 year Japanese government bond (JGB) climbed to a more than two-decade high of 2.880% on Thursday, lifted by rising oil prices and inflation fears as investors stay cautious over Japan’s fiscal outlook. The two year JGB yield rose 1 basis point to 1.44% while the five-year yield was also up by 1.1.995%.
Oil Prices and Fiscal Plans Push Returns Higher
Trump said he believes a tentative deal to formally end a war with Iran was over. This led to oil prices rising and U.S. Treasury yields jumping, squeezing global bond markets.
Japanese government bond yields have also increased since the government unveiled new spending plans in its new policy blueprint. The blueprint called on the Bank of Japan to match monetary policy to growth strategies, which raised concerns that the central bank may fall under pressure to maintain interest rates at rock-bottom even as inflation rises.
Investors Focused on Bond Auction and Policy Review
On Thursday, Japan’s finance ministry is set to sell around ¥2.5 trillion (US$15.38 billion) worth of five-year government bonds.
The government will put on an auction this week, but higher yields plus improving demand should underpin it, said Lisa Mochizuki, analyst at SMBC Nikko Securities.
The recent gains in JGB yields had been caused by fiscal concerns, with rising government spending raising the risk of inflation as well, said Ataru Okumura, chief rate strategist at SMBC Nikko Securities. The Japanese government is also considering changing its wording on monetary policy in its economic blueprint.
Source: Reuters
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