Japan’s 40-year government bond (JGB) yield surged to a record high on Tuesday, climbing by 3 basis points to 2.755%. This marks the highest level since the bond’s debut in 2007. Additionally, the country’s 20-year bond yield also saw an increase, reaching its highest point since May 2011 after Japan’s markets reopened following a public holiday.
The rise in Japanese bond yields is part of a broader global trend, with bond markets facing a selloff as investors worry about persistently high inflation and growing fiscal deficits. In the US, stronger-than-expected economic data has caused traders to revise their expectations, with fewer anticipating interest rate cuts by the Federal Reserve. The market is also grappling with the potential impact of President-elect Donald Trump’s victory.
Shoki Omori, chief Japan desk strategist at Mizuho Securities, noted that long-end JGB yields are rising quickly, mirroring trends seen in US Treasury yields. He suggested there is room for further increases in Japan’s bond yields as global yield curves steepen.
In addition to the global trend, investors are increasingly speculating that the Bank of Japan (BOJ) could raise interest rates in the near future. Governor Kazuo Ueda recently indicated that a rate hike could be on the horizon if Japan’s economic recovery continues. However, he did not offer specific details regarding the timing of any potential increases.
Currently, overnight index swaps show a 59% probability of a rate hike at the BOJ’s meeting next week, with the chances rising to 84% by March. However, Deputy Governor Ryozo Himino cautioned that the central bank is carefully considering various risks, both domestic and international, before making any decisions on rate adjustments.
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