Longer-dated JGB benchmark yield hits high before sale

Longer-dated Japanese government bonds slipped on Tuesday on caution ahead of an upcoming 10-year debt auction, with the benchmark yield touching a 2-½ month high and posting its biggest monthly rise in more than two years. But in a sign that an end may be in sight to a recent bear market in JGBs, futures marked their first back-to-back gains in seven weeks, helped by a tumble in the Nikkei average.

Short- to mid-term JGBs eked out gains as bargain-hunters such as domestic banks stepped in after a sharp, prolonged retreat by the maturities, with the yield curve steepening as a result. "The two-year yield's rise above 0.200 percent and the five-year's surge past 0.400 percent was overdone, opening the door for buyers to come in," said Takafumi Yamawaki, chief rates strategist at JP Morgan Securities. The two-year yield lost 1 basis point to 0.190 per cent after rising to a one-year high of 0.210 per cent the previous day. The five-year yield fell 1.5 basis points to 0.445 per cent, pulling back from Monday's seven-month high of 0.470 per cent. An ebb in expectations for further central bank easing amid the Nikkei's bull run and the yen's depreciation helped weaken the two- and five-years, although participants said the recent rise in yields looked excessive even given such considerations.