Japanese bonds rally as yields near historic highs lure buyers

TOKYO: Japanese government bonds (JGBs) rallied on Tuesday, as long-term yields at historic highs drew buyers and diminished hopes for central bank rate hikes supported shorter-dated securities.

The benchmark 10-year JGB yield fell 1.5 basis points (bps) to 1.550%. The 30-year yield lost 3.5 bps to 3.245%, down from Monday’s 3.285% that matched the all-time high hit last week.

Bond yields move inversely to prices.

JGBs slumped in the last session following the resignation of fiscal hawkish Prime Minister Shigeru Ishiba.

Sanae Takaichi, a proponent of government stimulus and monetary easing, has decided to run in the Liberal Democratic Party’s leadership race that will decide the next prime minister, the Kyodo news agency reported.

Concerns are likely to grow that the next administration, particularly one headed by Takaichi, will be reluctant to support rate hikes by the Bank of Japan (BOJ), Yusuke Matsuo, senior market economist at Mizuho Securities, said.

“We, therefore, see limited scope for rates to rise in the short- to long-term sectors (including the 10-year JGB yield), which tend to reflect such expectations,” Matsuo said.

“In the super-long sector, meanwhile, upward pressure on rates is likely to persist as political and fiscal risk factors continue to accumulate.”

Money markets now price in just a 22% chance of a BOJ rate hike by October-end, down from 46% odds a week ago.

The 20-year yield fell 3.5 bps to 2.635%.

On the shorter end of the yield curve, the two-year yield was flat at 0.825%, while the five-year yield lost 1 bp to 1.085%.