August 9, 2019 / 2:01 AM / 17 days ago

JGB yields hit 3-year lows, BOJ cuts buying long-dated bonds

TOKYO, Aug 9 (Reuters) - Japanese government bond prices held firm on Friday, with their yields hitting three-year lows, on broad concerns about the U.S.-China trade war, even as the Bank of Japan cut its purchase of long-dated bonds to deter excessive falls in yields.

The BOJ cut its buying of Japanese government bonds with 10 to 25 years to maturity by 20 billion yen ($188.8 million) to 160 billion yen, from 180 billion yen in previous operations since July.

The move came as the 10-year Japanese government bond yields fell below minus 0.200%.

The BOJ has said it roughly defines its policy target of “around zero percent” for the 10-year yield as 20 basis points above or below zero percent.

The cut in JGB purchase on Friday is considered to be a technical move to keep the 10-year yields in line with the current target.

Still reducing asset purchase at a time when many central banks in the world are easing their monetary policies highlights lack of the BOJ’s ammunition in policy after it has already built up a massive balance sheet and cut interest rates to negative levels.

Benchmark 10-year JGB futures rose 0.24 point to 154.65, extending gains even after the BOJ’s operation.

Although U.S. Treasuries have fallen on Thursday as calm has returned to U.S. equity markets, many investors are flocking to the safety of bonds as they see no clear end in U.S.-China trade woes, which intensified further this week.

The 10-year JGB yield fell 1 basis point to minus 0.205%, not far from three-year low of minus 0.215% hit on Tuesday.

The 20-year JGB yield fell 1.5 basis points to a three-year low of 0.115% and the 30-year JGB yield fell 1 basis point to 0.250%, the lowest since July 2016.

At the shorter end of the market, the five-year JGB yield fell 1.5 basis points to a three-year low of minus 0.300% while the two-year JGB yield fell 2 basis points to 2 1/2-year lows of minus 0.265%. (Reporting by Tokyo Markets Team; Editing by Shounak Dasgupta)

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