Japanese government bonds declined, sending benchmark yields to a more than one-week high, after the nation’s central bank refrained from expanding operations to stem volatility in debt markets.
Benchmark yields climbed after the Bank of Japan disappointed some investors who had speculated that it would extend the maturity of a one-year, fixed-rate loan facility to banks. The central bank stuck with an April pledge to increase the monetary base by 60 trillion yen ($611 billion) to 70 trillion yen per year.
“It looks like the bond market expected the BOJ to extend the loan term to more than two years, so no decision on that will give upward pressure on medium-term yields,” said Takafumi Yamawaki, the Tokyo-based chief rates strategist at JPMorgan Chase & Co., one of the 24 primary dealers obliged to bid at government debt auctions. “There’s a bit of disappointment.”
Japan’s 10-year yields increased 5 1/2 basis points to 0.88 percent, the highest since May 31, as of 5:01 p.m. in Tokyo, according to Japan Bond Trading Co. The price of the 0.8 percent note due in June 2023 fell 0.505 yen, or 505 yen per 100,000 yen face amount, to 99.264 yen. A basis point is 0.01 percentage point.
Yields have swung from an all-time low of 0.315 percent to as much as 1 percent since the BOJ announced on April 4 that it would double monthly bond purchases to more than 7 trillion yen.
Ten-year bond futures for September delivery slid 0.39 to 142.57 in Tokyo. The Topix index of shares declined 1 percent as the yen strengthened 0.6 percent to 98.22 per dollar.
Twenty of 23 analysts in a Bloomberg News survey forecast that the BOJ would approve loans of two years or longer, or said that such a move was possible today.
The central bank will discuss longer funding operations if they become necessary, Kuroda told reporters today. The BOJ will conduct bond operations to lower volatility, he said.
Japanese government bonds have gained 0.7 percent this year through yesterday, according to a Bank of America Merrill Lynch index.
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