Wednesday, December 7

Longer-dated JGB yields follow overseas peers lower amid UK U-turn talk

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TOKYO — Yields on the longest-dated Japanese government bonds retreated from multi-year highs on Friday, tracking a late decline in overseas yields amid speculation that the British government could backtrack on more of its controversial mini-budget.

Japanese five-year bonds yield edged lower, pressured by strong demand at an auction of the securities.

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However, short-dated JGB yields ticked higher, emulating moves in the Treasury curve that saw US two-year yields spike after red-hot consumer inflation data on Thursday triggered increased bets for Federal Reserve rate hikes.

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The 30-year JGB yield eased 0.5 basis point to 1.465%, while the 20-year yield fell 1 basis point to 1.060%.

The 20-year security had been volatile, with the yield earlier punching up to a fresh seven-year peak at 1.085%.

Benchmark 10-year JGB futures rose 0.07 point to 148.42 after starting the day flat.

The 10-year JGB had yet to trade, as of 0455 GMT, after changing hands on Thursday for the first time in five days. The yield was 0.245%, hovering half a basis point below the top end of the Bank of Japan’s policy limit under its yield curve control program.

British finance minister Kwasi Kwarteng cut short a trip to Washington with sources telling Reuters he would be working on his medium-term budget plan. Meanwhile, The Sun newspaper said Prime Minister Liz Truss may allow a rise in corporation tax next April, reversing a campaign promise.

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“The Truss administration’s tax cut plan put pressure for yields to rise not just in the UK but in bonds globally,” said Yusuke Matsuo, a market economist at Mizuho Securities.

“Even if it’s not a complete reversal, if the scale is reduced and the funding is clear, that’ll be cause for yields to fall.”

A bounce-back in the yen from a 32-trough versus the dollar overnight also helped to calm Japan’s bond market, said Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui Asset Management, despite the tighter monetary policy trend in the United States and elsewhere that led to higher global yields still being in place.

“The big picture remains the same, but as far as today is concerned, tension in the bond market is easing somewhat,” he said.

The five-year JGB yield fell 0.5 basis point to 0.065%, following an auction of the securities that traders described as “solid.”

However, the two-year JGB yield rose 0.5 basis point to -0.050%, emulating the bear flattening of the US yield curve after a report showed CPI jumped more than expected in September, fueling bets for 75 basis-point Fed hikes in both November and December. (Reporting by Kevin Buckland; Additional reporting by Tokyo markets team; Editing by Subhranshu Sahu)