November 8, 2019 / 7:14 AM / 13 days ago

JGBs post biggest weekly fall since 2008 as trade hopes whet risk appetite

TOKYO, Nov 8 (Reuters) - Japanese government bond prices dropped for a fourth consecutive session on Friday, marking their biggest weekly fall in more than a decade, as rising hopes of an interim U.S.-China trade deal improved investors’ risk appetite.

Officials from China and the United States said they had agreed to roll back tariffs on each others’ goods in a “phase one” trade deal if it is completed.

Although the plan appears to have met opposition from some advisers to U.S. President Donald Trump and there is no clarity on when and where any such deal will be signed, investors have so far bet that a deal will come through in the end.

Benchmark 10-year JGB futures fell 0.29 point to 152.91, marking the fourth consecutive day of loss. For the week, the contract was down a whopping 1.49 point, the biggest since October 2008, highlighting the scale of this week’s move.

“At a time there are signs that the global economy is bottoming out, the U.S. and China appear to be working for a deal. And the world’s central banks are no longer that aggressive about easing,” said Shinji Ebihara, director of research at Barclays.

“If overseas bond yields rise further, there is little reason we should think JGB yields will stabilise at the current levels.”

The 10-year benchmark cash JGB yield rose 2.5 basis points to minus 0.065%, having touched a six-month high of minus 0.045%. For the week, it was up 12 bps, the biggest rise since May 2013.

The 20-year JGB yield rose 3 bps to 0.295%, while the 30-year yield increased 4 bps to a five-month high of 0.445%.

A string of upbeat U.S. economic data over the past week has raised expectations that the global economy will gather momentum, if the two economic super powers come to some sort of compromise soon as expected.

In another sign of shift to risk assets, Tokyo’s REIT index plunged 2.6%, the biggest daily loss in 21 months. REITs had attracted funds escaping low bond yields for many months.

The brightening outlook also meant all bets on a further rate cut by the Bank of Japan, considered almost certain just a few weeks ago, were off.

At the shorter end of the market, the two-year JGB yield rose 1 bp to minus 0.185%, compared with minus 0.35% in late September.

The five-year yield rose 2.5 bps to minus 0.185%, versus minus 0.315% just a week ago and a record low of minus 0.40% on Sept. 25. (Reporting by Tokyo Markets Team; Editing by Subhranshu Sahu)

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