Japan’s 10-yr yield falls below top of BOJ ceiling for 1st time in a month

Japan’s 10-yr yield falls below top of BOJ ceiling for 1st time in a month

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TOKYO — Japan’s 10-year government bond (JGB) yield on Wednesday fell below the top end of the Bank of Japan’s policy ceiling for the first time in almost a month, despite upward pressure from U.S. peers.

The 10-year JGB yield fell 0.5 basis points to 0.495%, after having held steady at the top end of the BOJ’s target since Feb. 10.

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The BoJ continues its daily offers to buy unlimited amounts of the 10-year bonds, while strategists said traders are finding it hard to short cash bonds because of the increased costs for BOJ’s bond lending.

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“It is hard for traders to make additional short positions because of the increased costs for borrowing JGBs and reduced amounts for borrowing,” said Takafumi Yamawaki, head of Japan rates research at J.P. Morgan Securities.

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Last month, the central bank quadrupled the minimum fee charged to financial institutions for borrowing some 10-year bonds and reduced the maximum amount for borrowing, a move to deter market players from short-selling the notes.

In Asia, the heavy selling of short-dated U.S. government bonds continued on Wednesday, driving two-year Treasury yields to new 16-year highs as Federal Reserve Chair Jerome Powell’s comments had traders scrambling to price in more rate hikes.

The benchmark 10-year U.S. Treasury yield rose to as high as 4.0110% on the day and was last at 3.9913%.

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Powell opened the door to a 50 bps hike when he said on Tuesday that recent stronger-than-expected economic data meant the speed and size of hikes may also need to increase.

Meanwhile, the BOJ’s two-day policy meeting starts Thursday, with market players expecting the central bank to keep its ultra-low rate policy unchanged.

Yields on longer-ended JGBs rose, with the 20-year JGB yield rising 1 basis point(bp)to 1.250%.

The 30-year JGB yield rose 3 bps to 1.450% and the 40-year JGB yield climbed 4.5 bps to 1.665%, its highest since Feb. 22.

Benchmark 10-year JGB futures fell 0.08 yen to 146.79, with a trading volume of 8,851 lots. (Reporting by Junko Fujita; Editing by Savio D’Souza)

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