July 30, 2018 / 2:49 PM / 4 months ago

TREASURIES-Yields edge up ahead of Bank of Japan announcement

NEW YORK, July 30 (Reuters) - Yields on U.S. Treasury bonds were up on Monday morning, with the 10-year yield at a six-week high, as investors sold government bonds on the growing speculation that the Bank of Japan may adjust its ultra-loose monetary policy at its meeting this week.

Governor Haruhiko Kuroda’s central bank said it bought 1.64 trillion yen ($14.77 billion) of Japanese government bonds on Monday to stem a rise in bond yields on the back of rising expectations the BOJ will adjust interest rates.

This is the largest amount of debt bought by the BOJ to manage its yield curve, and represents the third action in a week. Prior to the intervention, the 10-year Japanese government bond made its biggest upward move in more than a year.

“We’d be far out over our analytical skis to offer a skew on the chances Kuroda increases the peg or widens the band from around 10 basis points to something more substantial. ... Suffice it to say, that risk is the current focus in the Treasury market as we await the bank’s decision,” wrote Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets in New York.

The benchmark 10-year government bond approached 3 percent on Monday morning, hitting 2.99 percent, its highest since June 13. The two-year note yield was up by less than a basis point from Friday at 2.678 percent. The 30-year bond yield was up over a basis point from Friday to 3.102 percent.

The BOJ’s meeting is the first in a series this week. The Federal Reserve will conclude its meeting on Wednesday, and the Bank of England will conclude on Thursday.

No change in interest rates is expected to come from the Federal Open Markets Committee meeting on Tuesday and Wednesday. Futures traders are pricing in just a 3 percent chance that the central bank will raise rates in August, according to the CME Group’s FedWatch Tool. But the Fed’s interpretation of the mixed second-quarter GDP growth data released on July 27 will be watched closely.

Market participants will be looking for adjustments to the language in Fed Chair Jerome Powell’s policy statement. Minutes from the June FOMC meeting said “a number of (participants) noted that it might soon be appropriate to modify the language in the post-meeting statement indicating that ‘the stance of monetary policy remains accommodative.’”

“All the big GDP questions for fixed income eventually come down to the Fed’s reaction to the numbers. The report provided ample fuel for hawks and doves,” said Jim Vogel, interest rate strategist at FTN Financial in Memphis, Tennessee. (Reporting by Kate Duguid; Editing by Will Dunham)

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