Japanese Government bonds sagged on Thursday, with the 20- and 30-year bond yields hitting eight-month highs, following a retreat in U.S. Treasuries and on caution ahead of a 40-year JGB auction.
Long-dated JGBs came under pressure as a sell-off in U.S. Treasuries showed no sign of abating, with the 10-year U.S. yield hitting a 16-month high.
U.S. bonds have been sold on the expectation that U.S. President-elect Donald Trump’s policies may boost fiscal spending and lift U.S. growth and inflation.
The 30-year JGB yield rose to 0.650 percent, its highest level since mid-March. The 20-year yield edged up to 0.500 percent, also an eight-month high.
Investors are turning cautious ahead of Friday’s auction of 500 billion yen 40-year JGBs.
The 40-year JGB yield has risen 18 basis points since the BOJ adopted its yield curve control policy in September by switching to targeting interest rates under a revamped monetary policy programme.
But so far the BOJ has not taken any steps to curtail rise in those maturities.
In contrast, the rise in shorter-dated bond yields was limited following the BOJ’s operation last week to keep a tab on them.
The BOJ last Thursday offered to buy an unlimited amount of two-year JGBs at minus 0.09 percent and five-year JGBs at minus 0.04 percent, rolling out the new bond-buying tool it unveiled in September to stem rises in bond yields.
Market players took the levels where the BOJ said it would buy as soft policy targets in addition to its official policy target of -0.10 percent in the short-term interest rates and zero percent in the 10-year yield.
The two-year yield fell 0.5 basis point to minus 0.170 percent while the five-year yield rose 0.5 basis point to minus 0.090 percent.