Superlong JGB yields skid after BOJ steps up buying

16-Dec-2016 Intellasia | Reuters | 6:00 AM Print This Post

Superlong Japanese government bond prices rose on Wednesday, sending yields skidding from recent highs after the Bank of Japan increased purchases in that zone as part of its regular buying operations.

A BOJ official said the increase was aimed at steering the JGB yield curve toward what the central band deems appropriate, and that the move took into account recent rapid rises in super-long yields and the possibility of further volatility.

Under its current monetary policy framework of “yield curve control” unveiled in September, the BOJ aims to guide the 10-year JGB yield to around zero percent.

“It was a surprise, as generally the BOJ does not offer to buy superlong JGBs the day ahead of a 20-year auction,” said Keiko Onogi, senior strategist at Daiwa Securities.

“We don’t know if the BOJ will continue to provide this kind of surprise to the market,” she said. “It could make it harder for us to predict the BOJ’s buying schedule.”

On Thursday, the Ministry of Finance will hold a regular auction for 1.1 billion yen ($9.56 million) of 20-year JGBs.

Superlong JGB yields have risen to multi-month highs in recent sessions, tracking higher global yields. Yields on US Treasuries have soared since the November 8 election of Donald Trump, who market participants expect will adopt reflationary policies.

Later on Wednesday, the Federal Open Market Committee (FOMC) is widely expected to raise its interest rate target by 0.25 percentage point to 0.50-0.75 percent at the conclusion of its two-day policy meeting, and could signal further hikes ahead.

“Just in case Treasury yields resume their rise after the FOMC, the BOJ took action today to lower long-term yields,” said Yutaka Miura, a senior technical analyst at Mizuho Securities.

Last month, as JGB yields faced upward pressure following Trump’s victory, the BOJ offered to buy an unlimited amount of 5-year JGBs at minus 0.04 percent and 2-year JGBs at minus 0.09 percent, to prevent yields in those zones from rising.

On Wednesday morning, the BOJ offered to buy 120 billion yen of JGBs with over 25 years left to maturity. It also offered to buy 200 billion yen of JGBs with between 10 and 25 years left to maturity.

The 30-year yield, which touched its highest levels since mid-March in the previous session, shed 7.5 basis points (bps) to 0.730 percent. It fell to a session low of 0.725 percent from an earlier session high of 0.785 percent before the BOJ’s operations. The benchmark 10-year yield fell 2 bps to 0.060 percent, moving away from a 10-month peak of 0.080 percent marked this week, while 10-year JGB futures finished up 0.15 point at 149.97.

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Category: Japan

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