JGB yields perched at multi-year peaks as BOJ rate hike bets rise

Japanese government bond (JGB) yields rose to fresh multi-year highs on Monday amid rising bets that the Bank of Japan will resume hiking interest rates at its meeting next week.

Traders currently lay about 80% odds that the central bank will raise rates by a quarter point on December 19, after BOJ Governor Kazuo Ueda said at the start of the month that policymakers would "consider the pros and cons" of tightening policy at its upcoming gathering.

Reuters later reported that a December rate hike is likely, with the government expected to tolerate such a decision.


The 10-year JGB yield advanced 0.5 basis point (bp) to 1.955%, the highest since July 2007.

The two-year yield rose 0.5 bp to 1.055%, the highest since July 2007.

Yields move inversely to bond prices.

"It is reasonable to conclude that the deliberate change in language implies the Bank wanted the market to price in a December hike, which we believe is now its baseline scenario," said Noriatsu Tanji, chief bond strategist at Mizuho Securities.

However, the climb in the 10-year yield has been exaggerated by "short-term flow dynamics", Tanji said.

"With the market already pricing in a considerable amount of tightening, we do not expect the 10-year JGB yield to continue trending higher."

The five-year yield rose 0.5 bp to touch 1.44% for the first time since June 2008.

The 20-year JGB yield gained 2.5 bps to match the record high from June 1999 at 2.945%.

The 30-year yield climbed 2.5 bps to 3.38%.