JGB Yields Hit New Decade-highs as Speculation on YCC Tweak Grows

Japanese national flag is hoisted atop the headquarters of Bank of Japan in Tokyo, Japan September 20, 2023.

TOKYO, Oct 23 (Reuters) – Japanese government bond (JGB) yields rose to new multi-year highs on Monday as investors digested the likelihood of the Bank of Japan further adjusting its yield curve control policy (YCC) next week.

The benchmark 10-year JGB yield JP10YTN=JBTC, which moves inversely to prices, ticked up 2 basis points (bps) to 0.855%, its highest since July 2013.

One of the possibilities being discussed is raising the 1% ceiling on the 10-year yield at next week’s monetary policy meeting, Reuters reported. The Nikkei newspaper first reported the news over the weekend.

The 20-year JGB yield JP20YTN=JBTC rose to 1.665%, a fresh decade high, while the 30-year JGB yield JP30YTN=JBTC was up 3.5 basis points (bps) at 1.855%, its highest since July 2013.

On the short end, the two-year JGB yield JP2YTN=JBTC edged up to at 0.08% its highest since June 2014 .

A recent surge in global interest rates is increasing pressure on the BOJ to change its YCC policy.

There were some expectations that policy changes would happen next year, “but that keeps getting accelerated and now, it seems like it wouldn’t be odd if it’s moved up to next week,” said Makoto Suzuki, senior bond strategist at Okasan Securities.

Between concern over what the BOJ will decide next week and how the Federal Reserve’s interest rate path will pan out, investors are cautious, he said.

The 10-year U.S. Treasury yield was last hovering just under 5% in the Asian afternoon. It was briefly bid above 5% late on Thursday for the first time since July 2007 after Fed Chair Jerome Powell said the U.S. economy’s strength and tight labor markets might warrant tighter financial conditions.