Benchmark JGB yield hits 29-year high as oil surge fuels inflation fears

Japanese government bond yields rose on Thursday, with the benchmark 10-year yield hitting a 29-year high, as reports of U.S. military action to end Iran stalemate drove oil to a four-year high and fuelled inflation concerns.

The benchmark 10-year JGB yield rose 6.5 basis points to 2.525%, ‌the highest since ⁠June ⁠1997. The five-year yield rose 5 bps to a record high of 1.905%.

Yields move inversely to bond ​prices.


Brent crude futures jumped $8 to $126.09 a barrel by 0417 GMT, after a 6.1% rise on Wednesday.

"Higher oil prices and the risk of further deterioration in the situation around the Strait of Hormuz are weighing on the market, leading to stronger selling ​pressure in the long end of the bond market," ⁠said Ryutaro ‌Kimura, fixed-income strategist at BNP Paribas Asset Management.

"It raises the ​risk of further ​price increases, and, judging from global market scenarios as well, ⁠the current move is likely to heighten inflation concerns."

The Bank ​of Japan's reluctance to signal a near-term rate hike, after ​keeping interest rates steady on Tuesday, also reinforced pressure on yields at the long end, Kimura said.

Meanwhile, the two-year JGB yield, which is most sensitive to BOJ policy, pared early gains to 1.375%, up 0.5 bp on the day.

Demand was strong at an auction of about 2.8 trillion yen ($17.45 billion) of ‌the notes, with a bid-to-cover ratio of 5.24, the highest since August 2024.

Kimura said the auction results signalled less about ​yield appeal than investor ​caution, with funds ⁠rotating into shorter maturities as a defensive play amid growing concern over rising-rate risk in long- and super-long bonds.

The 30-year yield added 6 bps to 3.7%. The yield on ​the 40-year JGB, Japan's longest tenor, rose 7 bps to 3.935%.

Separately, Reuters reported that Japan's government is considering reinstating electricity and natural gas subsidies for three months starting in July, with funding of up to about 500 billion yen, to be drawn from reserve funds rather than a supplementary budget. ($1 = 160.4700 yen)