Japanese government bond (JGB) yields fell from recent decade-highs on Tuesday, tracking U.S. Treasury yields lower, amid the possibility the Federal Reserve may be done hiking rates and the conflict in the Middle East.
The 10-year JGB yield fell as low as 0.765%, after rising to a 10-year high of 0.805% the previous week. It last stood at 0.775%.
The 30-year JGB yield dropped to its lowest level in two weeks before picking up to 1.725%.
The fall mirrors U.S. Treasuries, which made their sharpest rally in more than a month during Asian hours, as Federal Reserve remarks have investors undercutting the likelihood of further Fed rate hikes and demand rose for safe assets following the Middle East violence.
JGB yields are likely to hang lower this week, with risk sentiment offering support, even with market attention turning to U.S. CPI data out later this week, said Takeshi Ishida, a strategist at Resona Holdings.
“I don’t think the downward trend of inflation (in the United States) will change. So, it’s doubtful that CPI numbers will cause yields to rise a lot.”
But with the Bank of Japan (BOJ) in a different spot in the monetary policy cycle compared with its peers in the United States and Europe, the fall in Japan’s government yields may be more limited than abroad, Ishida added.
The BOJ has yet to exit from its ultra-loose monetary stance, but anticipation has grown for Japan’s central bank to raise rates.
A recent summary of opinions at the BOJ’s September meeting suggests the central bank may be laying the groundwork to end negative interest rates.
The 20-year JGB yield ticked down 2 bps to 1.57%.
On the short end, the two-year JGB yield was last at 0.055%.
The five-year yield sat 2 bps lower at 0.31% ahead of an auction for the note on Wednesday.
