Japan's short-dated bond yields hit 30-year peak on BOJ rate hike bets

By Reuters News

TOKYO, Sept 17 (Reuters) - Short-dated Japanese government bond (JGB) yields rose to their highest since April 1995 on Thursday, buoyed by expectations for the Bank of Japan to raise interest rates on Friday after the Federal Reserve tightened policy overnight.

Here are a few details:

  • The 2-year JGB yield rose 2 basis points (bps) to 1.865%, buoyed by a climb in equivalent U.S. Treasury yields after the Fed delivered a hawkish message with its hike and forecast an additional rate increase this year. Yields rise when bond prices fall.

  • The BOJ is widely expected to raise rates by a quarter point to 1.25% on Friday, with market pricing signalling expectations for additional hikes each quarter, doubling the key rate to 2% in about a year's time.

  • "How firmly the BOJ keeps the door open to further normalisation to avoid material yen depreciation against the U.S. dollar" will be a key focus, particularly after the Fed's hawkish stance saw a sharp rebound in the dollar-yen rate overnight, said David Clewell, a portfolio manager at T. Rowe Price.

  • Meanwhile, longer-dated JGB yields fell as a decline in crude oil prices allayed inflation fears, leading to a so-called twist flattening of the yield curve.

  • 40-year JGB yields dropped 5 bps to 4.115%, while 20-year yields lost 1.5 bps to 3.84%. 30-year cash JGBs had not traded, as of 0409 GMT.

  • 10-year JGB yields declined 0.5 bp to 2.99%, while 5-year yields added 1.5 bps to 2.295%.

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