TOKYO, May 22 (Reuters) - Fears that the Bank of Japan is scaling back its massive bond buying programme rippled through corporate bond markets on Monday as traders rushed to dump their holdings at an auction, pushing yields to a 1-1/2 year high.
Sellers offered 403 billion yen ($3.62 billion) in Monday's corporate bond auction, more than four times the amount the BOJ's 100 billion yen purchase.
That sent the average yield to 0.014 percent and the stop rate to 0.009 percent, the first time both yields turned positive since the BOJ started its negative interest rate policy in early 2016.
Yields at the BOJ operation have edged higher since March, when traders began dumping corporate bonds on fears the BOJ would buy less of them at negative yields.
While Japan's central bank has for long held that any talk of an exit from its four-year-old quantitative easing policy is premature, there have been subtle changes this year. The BOJ, has for example, gradually reduced the pace of its bond buying.
Monday's auction makes it three months in a row where sellers have offered more than four times the amount of corporate bonds than what was purchased. Before that, the ratio had never exceeded three times.
Some market players welcome the development as a return to a more normal market from one that was distorted by the BOJ's intervention.
"This is a signal that the corporate bond market is coming back to more normal conditions," said Toshiyasu Ohashi, chief credit analyst at Daiwa Securities.
Because the BOJ buys corporate bonds with maturity of up to three years, many companies have issued three-year bonds with near zero percent yield. On Friday, Nidec Corp issued three-year bonds at a yield of 0.0003 percent.
"In the past, there had been a lot of three-year bond issues around zero percent on the assumption that the BOJ will buy them. So some people must be holding a heavy position now," said Jun Fukashiro, head of global strategy investment at Sumitomo Mitsui Asset Management.
$1 = 111.38 yen Reporting by Hideyuki Sano; Editing by Randy Fabi