JGB earnings are mixed due to rising US yields and weak demand at the 10-year bond auction. – December 5, 2023 at 7:07 am

Japanese government bond (JGB) yields struggled to find direction on Tuesday as their US counterparts rose overnight and 10-year JGB auctions disappointed.

The 10-year JGB yield rose 0.5 basis points (bps) to 0.695% in Asian morning trade, watching US Treasury yields strengthen further from Thursday’s 2.5-month low of 0.635%. However, after the auction results were published, it fell by 1.5 basis points to 0.675%.

The cover ratio for Tuesday’s auction, which compares total bids to the amount of securities sold, was 2.82, the lowest level since October 2021. The lower the ratio, the weaker the demand.

The results suggest that a yield of around 0.7% is “not very attractive to bond investors” as they factored in factors such as further tapering of bond purchases by the Bank of Japan (BOJ) and the timing of a possible exit from the ultra-loyalty policy, said Ryutaro Kimura, fixed income strategist at AXA Investment Managers.

National economic data released on Tuesday showed Tokyo’s core consumer inflation, seen as a leading indicator of national trends, rose 2.3% in November from a year earlier, staying above the BOJ’s 2% target but falling from 2.7 % increase in October.

While some investors expect the BOJ to take action as early as January, Mr Kimura said there were concerns about a global economic slowdown, as well as Japan’s weak third-quarter GDP, creating some uncertainty.

The 20-year JGB yield rose to 1.450% and fell 0.5 basis points to 1.435% after the auction.

US Treasury yields, meanwhile, rose overnight, with the 10-year yield hitting a three-month low ahead of jobs data due this week, lifting JGB yields slightly. The 30-year JGB yield rose 0.5 basis points to 1.670%. The five-year yield increased by 0.5 basis points to 0.260%.

Elliot Frost

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