Japanese government bonds fell on Wednesday, with benchmark futures snapping a seven-session win streak, as traders took cues from a retreat in short-term U.S. Treasuries overnight.
A closely watched auction of 30-year JGBs scheduled for Thursday also gave investors reason to be cautious.
Benchmark 10-year JGB futures (2JGBv1) slid 0.27 yen to close at 138.60 yen, ending the longest string of gains since June 2023.
Cash 10-year JGB yields (JP10YTN=JBTC), which rise when bond prices fall, added 2 basis points (bps) to 1.49% as of 0602 GMT, lifting off the nearly one-month low of 1.465% touched on both Monday and Tuesday.
Five-year yields (JP5YTN=JBTC) advanced 1.5 bps to 1.02%, and two-year yields (JP2YTN=JBTC) climbed 2 bps to 0.77%.
Overnight, two-year Treasury yields (US2YTN=RR) rose from a three-month low following a steep drop after a run of weak U.S. economic data, particularly Friday’s monthly payrolls report, boosted the case for a Federal Reserve rate cut as soon as next month.
ISM data on Tuesday was less clear-cut, showing both an unexpected stagnation in services activity and building price pressures, complicating the Fed’s task of taming inflation while fostering full employment.
Japan’s 20-year bond yields (JP20YTN=JBTC) also rose on Wednesday, adding 1 bp to 2.505%.
The 30-year yield (JP30YTN=JBTC), however, eased 1 bp to 3.065%.
These so-called superlong yields spiked in July, with the 30-year yield hitting a record peak, after Japan’s ruling coalition lost its upper house majority. Opposition parties promising fiscal spending made strong gains, stoking worries about the country’s finances.
“Concerns about fiscal expansion remain entrenched in the market,” and “the superlong zone easily reflects the long-term fiscal risk premium,” which could dent demand at the 30-year JGB sale, Mizuho Securities analyst Gen Taniguchi wrote in a research note on Wednesday.
At the same time, “many market participants in the superlong zone place importance on the absolute level of yields,” and yields above 3% could draw buyers, he said.
AloJapan.com