TOKYO, June 8 Japanese government bond prices
slid across the board on Thursday, with the benchmark 10-year
yield rising to a 2-month high, as an edgy market reacted
negatively to a report regarding Bank of Japan's stance on its
massive stimulus programme.
The two-year JGB yield was 1.5 basis points
higher at minus 0.105 percent after reaching minus 0.090
percent, its highest since February 2016. The 10-year yield
climbed 3 basis points to 0.070 percent, its
highest since early April.
Bloomberg reported on Thursday, citing unnamed sources, that
the BOJ was re-calibrating its communications to acknowledge
that it is thinking about how to handle a future exit from
While the idea of the BOJ telegraphing an exit from its
massive stimulus is not an unfamiliar theme, the report was seen
to have caught the market at a vulnerable time.
"Both JGBs and the yen appear to be reacting to the
Bloomberg article. There was a shortage of immediate incentives
today and the market jumped on it," said Shuichi Osaki, a rates
strategist at Merrill Lynch Japan Securities.
"Medium-term JGBs had also been weakened by several days of
selling, and it was vulnerable to such headlines. That said, the
exit theme is not new, so the market could be over-reacting a
Yields of two-year and five-year JGBs have risen steadily
this week as the market reacted negatively to the BOJ's recent
reductions in the amount of shorter-dated debt it buys at
regular purchasing operations.
The central bank has trimmed its purchases in an attempt to
reintroduce liquidity after its massive JGB-buying created a
shortage of debt available to market participants.
Still, any reductions in the amount it buys have not been
met with enthusiasm by a market now accustomed to having the BOJ
absorb volumes of JGBs.
The five-years fared a little better thanks to a
well-received auction of the maturities. The yield on five-year
JGBs was up a basis point at minus 0.085 percent
after briefly touching a four-month peak of minus 0.075 percent.
The bid-to-cover ratio, a gauge of demand, at Thursday's 2.2
trillion yen ($20 billion) five-year auction rose to 4.71 from
3.59 at the previous sale last month.
The new five-year JGBs were seen to have drawn ample
investor demand as the maturities had cheapened significantly
prior to the auction.
(Reporting by the Tokyo markets team)