JGB yields tick up as market readjusts bets for BOJ rate hike

Japanese government bond (JGB) yields rose on Thursday, as market participants grappled with wavering expectations that the Bank of Japan will deliver an interest rate hike this month.

The 10-year JGB yield rose 1 basis point (bp) to 1.06% after sliding to a three-week low of 1.04% on Wednesday, while 10-year JGB futures slipped 0.08 yen to 143.08 yen.

"It seems like we're experiencing a rebound from yesterday," said Katsutoshi Inadome, a senior strategist at Sumitomo Mitsui Trust Asset Management. "Yesterday, the view spread that there would be no rate hike due to media reports, but the thinking seems to have shifted back today to the possibility that there could be one." Expectations had been growing that the BOJ will hike rates at its Dec. 18-19 monetary policy meeting, buoyed by Governor Kazuo Ueda's comments in an interview with Nikkei newspaper that the timing of the next rate hike was "approaching".


But some media reports published on Wednesday suggested the BOJ may skip a rate hike this month, sending those expectations tumbling.

Markets now see about a 37% chance of a rate increase in December, down from around 60% on Monday. Toyoaki Nakamura, one of the BOJ board's more dovish members, said on Thursday the central bank must move "cautiously" in raising interest rates, highlighting uncertainty around the chances of a hike this month.

The two-year JGB yield fell 0.5 bp to 0.58%, while the five-year yield ticked up 0.5 bp to 0.715%.

The 30-year JGB yield was up 2 bps at 2.295% after an auction for the bonds garnered decent demand.

The bid-to-cover ratio, a common measure of demand, came in at 3.46, up marginally from 3.44 in November.

The 20-year JGB yield rose 1.5 bps to 1.87%.