TOKYO, June 8 (Reuters) - 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 monetary stimulus.
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 little.”
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)