Japan's 10-year yield off decade high as BOJ promises to buy bonds

Japan's 10-year government bond yield pulled back slightly from a 10-year peak on Tuesday after a firm auction, with the Bank of Japan (BOJ) promising to buy bonds in the next session.

But global yields are on the rise and the 10-year swap rate hit a record high, indicating strong upward pressure on JGB yields.

The 10-year JGB yield fell 1 basis point (bp) to 0.760%, after hitting 0.780% - its highest since September 2013 - earlier in the session.


"The BOJ has been trying to contain elevated yields by conducting emergency bond buying, but there is upward pressure remaining," said Takeshi Ishida, strategist at Resona Holdings.

"It is a question of when the BOJ will tweak the policy, not whether it would do it or not," Ishida added.

The 10-year interest rate swap rate rose to a record high of 0.9875% on Tuesday.

The BOJ said on Monday it would conduct an unscheduled bond buying operation on Wednesday after the yields hit new multi-year highs and another operation on Friday.

The government bond auction received 3.93 times the amount sold, slightly lower than a ratio of 4.02 times at the previous auction last month.

But the tail, or the gap between the lowest and average price, narrowed to 0.02 yen from 0.10 yen, signalling stronger demand.

The outcome was supported by the BOJ's bond buying, said Keisuke Tsuruta, fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities.

"Even though the BOJ widened the trading band of the 10-year bond yields to give more flexibility to the market, the yield levels and outcome of an auction is determined by what the BOJ does," said Tsuruta.

The 10-year bond auctions in the previous two months witnessed weak demand as investors were cautious about buying the securities amid growing speculation that the BOJ would tweak its ultra-low rate policy.