TOKYO Dec 12 Long-dated Japanese government
bond prices tumbled on Monday, driving the benchmark 10-year
yield to its highest in 10 months, on the back of continuing
gains in U.S. bond yields and Japanese shares.
The longest end of the yield curve came under strongest
pressure on growing perception that the Bank of Japan is more
tolerant of rises in yields on those maturities than it is on
The 30-year yield rose 8.5 basis points from its previous
close to 0.785 percent, now more than 25 basis
points above its levels in September when the central bank said
it would guide the yield curve where it was then.
"The market is broken. The brokerages who bought a large
amount in the previous 30-year bond auction last week are
selling them at a discount to investors," said a trader at a
The 40-year JGB yield rose 6.0 basis points to 0.885 percent
, now about 30 basis points above its levels just
before the BOJ introduced the new policy framework.
While the BOJ's official policy is dubbed as the "yield
curve control", the central bank's inaction to the rises in
maturities over 10 years in the recent sessions is fanning the
view that the BOJ's pain thresholds may be much higher.
Lack of action from the BOJ contrasted with the steps it
took in mid-November, when it offered to buy an unlimited amount
of short-term bonds, including five-year JGBs at a yield of
minus 0.04 percent and two-year JGBs at minus 0.09 percent, to
stop rises in those yields.
Since then, shorter yields have stabilised, with the
five-year yield standing flat on Monday at minus
0.090 percent, below its 9-1/2-month high of minus 0.040 percent
touched last month.
Investors were also cautious in selling 10-year bonds, which
they believe the BOJ will have a tighter grip on. It is the only
maturity in which the central bank has an explicit policy
target, of around zero percent.
Yet, the impact of big rises in 20- to 40-year yields
filtered through to the 10-year debt. The benchmark 10-year JGB
yield rose 1.5 basis points to 0.065 percent, at
one point, climbing to 0.070 percent, its highest since
"The market is nervous because the BOJ could come in to stem
rises in the yields. So they are testing the water, little by
little," said Hideaki Chida, chief fixed income strategist at
NLI Research Institute.
(Editing by Jacqueline Wong)