August 2, 2018 / 2:30 AM / 4 months ago

JGB yields brush 1-1/2-year high before easing, 10-yr sale awaited

TOKYO, Aug 2 (Reuters) - The benchmark Japanese government bond yields touched a fresh 1-1/2-year high on Thursday before easing as the market remained unstable in the wake of the central bank’s new commitment to allow yields to move more freely.

The 10-year JGB yield stood unchanged at 0.125 percent after hitting 0.145 percent, its highest since February 2017.

JGB yields have spiked this week after the Bank on Japan (BOJ) on Tuesday pledged to keep interest rates low for an extended period, but also suggested that it will allow rates to rise further than it previously allowed under its yield-curve control (YCC) scheme.

The seemingly mixed message has prompted the bond market to test the BOJ’s new commitment by pushing yields higher, to see at which level the central bank would step in through its so-called special JGB-buying operations.

The rise by the benchmark yield slowed on Thursday as the market awaited the 2.2 trillion yen ($19.72 billion) 10-year JGB auction results for clues on investor appetite for debt following this week’s turbulence.

“It is not the ideal situation for potential 10-year bond buyers considering turmoil that ensued after the BOJ meeting, as it still remains unclear how much further the central bank will allow yields to rise,” wrote Shintaro Inagaki, market analyst, Mizuho Securities.

“However, within the current YCC framework, upward pressure on the 10-year yield is likely to weaken as it approaches 0.20 percent. Post-auction turbulence should be curtailed if the 10-year manages to hold around Wednesday’s closing level of 0.125 percent.”

While the rise in long-term JGB yields were capped, super long bonds remained jittery. The 30-year yield rose 3 basis points to 0.835 percent, its highest since January.

$1 = 111.5600 yen Reporting by the Tokyo markets team, Editing by Sherry Jacob-Phillips

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