Japanese government bonds slide on inflation signs, BOJ rate-hike bets

TOKYO: Japanese government bonds (JGBs) fell on Monday, driving yields back towards multi-decade highs, as inflation concerns and expectations for further central bank tightening spurred selling. Here are a few details: The benchmark 10-year JGB yield climbed 2 basis points (bps) to 3. 095%, poised for its highest close since August 1996. Yields move inversely to bond prices. The 2-year yield, the one most sensitive to Bank of Japan policy rates, advanced 1. 5 bps to 1. 950%, matching a 31-year peak seen last week. A key gauge of Japan’s service-sector inflation rose in August at the fastest annual pace in more than two years, data showed, highlighting price pressures that may justify more interest rate increases. “Given that major developed economies share factors that fuel inflation, such as fiscal expansion and high commodity prices, it’s possible that expectations will grow that the Bank of Japan will eventually be required to tighten monetary policy as well, ” Ataru Okumura, a senior rate strategist at SMBC Nikko Securities, said in a note. Minutes released on Monday from the BOJ’s July policy meeting showed board members saw the need to focus on inflation, with some members calling for faster rate hikes. The central bank this month raised its key rate to 1. 25%, a 31-year high. Markets are looking ahead to auctions of 40-year and 2-year JGBs on Tuesday and Wednesday, respectively. The Ministry of Finance will hold a regular meeting with primary dealers on Monday afternoon. MOF officials may discuss reducing the issuance amount in liquidity enhancement auctions for 5-to-11-year bonds, according to a Reuters report last week. “Attention is focused on whether such reductions will occur, and if so, their scale and the instruments to be used to offset them, ” Takuya Onizawa, a fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities, said in a note. The yield on the 30-year JGB added 1 bp to 4. 165%. ‑Reuters

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