Japan bond yields head for historic fifth straight quarterly surge

By Junko Fujita

TOKYO, Sept 30 (Reuters) - Japan's benchmark government bond yields were on track on Wednesday for a fifth straight quarter of double-digit increases, underscoring the global bond selloff and concerns over country's fiscal outlook.

The yield on the 10-year JGB is set to rise 42 basis points in the three months to the end of September, marking an unprecedented fifth consecutive quarter of double-digit gains since 1992.

The 10-year yield fell 0.5 bp to 3.08%.

In Japan's latest session, mid-term bond yields rose more sharply than longer ends on growing bets that the Bank of Japan will hike rates as early as October.

The 2-year government bond yield fell 2 bps to 1.94% as a modestly firm outcome for the 2-year bond auction relieved investors.

The auction took place after expectations for the US Federal Reserve's October rate hike eased following dovish comments from Federal Reserve Bank of New York President John Williams. US

"High expectations for the BOJ's rate hike in October were driven by growing bets for the Federal Reserve's October rate hike," said Masayuki Koguchi, executive chief fund manager at Mitsubishi UFJ Asset Management.

The market saw that the BOJ would have to raise rates if the Fed tightens policy, as a wider interest-rate gap could send the yen weaker.

Swap rates imply a 23% chance of the BOJ raising rates to 1.5% in October, down from 36% in the previous session, according to money market broker Tokyo Tanshi.