On Thursday, Japanese government bond yields reached new decade highs, following increases in U.S. Treasury yields due to concerns that the Federal Reserve may maintain higher interest rates for an extended period of time.
At 2.5 basis points (bps) higher, the 10-year JGB yield reached 0.830%, the highest level since July 2013. At 2.5 basis points, the five-year yield reached 0.370%, the highest level since May 2013.
Even though the Bank of Japan (BOJ) intervened in the previous session to curb the rise and offered to buy bonds with maturities of five to ten years and ten to twenty-five years in an emergency bond purchasing operation, the rates continued to grow.
“What the BOJ could do was limited,” stated Chotaro Morita, head of Walls & Bridges and chief strategist at All Nippon Asset Management, “because the U.S. yields rose mostly.”
During Asian trading, Treasury rates on long- and short-dated tenors reached 16-year highs, and selling drove the 10-year yield down to about 5% as investors bet that Federal Reserve Chair Jerome Powell would adopt a hawkish stance on Thursday given the robust state of the economy.
“As long as the BOJ has a mandate to control the long-term yield at around 0.5%, it has to take some action if the yield approaches closer to 1%,” Morita stated.
The BOJ sets short-term interest rates at -0.1% and the yield on the 10-year bond at about 0% as part of its yield curve management programme. A hard cap of 1.0% was implemented in July, and there is also an allowance band of 50 basis points placed on each side of the yield objective.
Powell is attending the Economic Club of New York at 1600 GMT to participate in a talk about the state of the economy.
Reaching its highest since September 2013, the 20-year JGB yield increased 3 basis points to 1.605%. At 1.775%, the 30-year JGB yield increased by 1.5 basis points.
At 2.045%, the 40-year JGB yield increased by 1.5 basis points.
At 0.075%, the two-year JGB yield increased by 1 basis point.