June 20, 2013 / 6:18 AM / 4 years ago

JGBs fall as U.S. Fed reveals plan to dial back bond-buying

* Ten-year JGB yield up but still within 0.80-0.90 pct range

* Both 20- and 30-year JGB yields hit four-week high

By Dominic Lau

TOKYO, June 20 (Reuters) - Japanese government bond prices fell on Thursday, tracking weakness in U.S. Treasuries after Federal Reserve Chairman Ben Bernanke said the U.S. central bank could start scaling back its bond-buying stimulus in coming months as the economy improved.

Bernanke’s confirmation that the Fed is getting closer to rolling back on its monthly $85 billion asset purchases sent benchmark 10-year U.S. Treasury yields to a 15-month high and weighed on equities.

The 10-year JGB yield added 2.5 basis points to 0.835 percent after trading as high as 0.850 percent, still within the range of 0.800 to 0.900 percent the benchmark bond has been trading over the past three weeks.

However, it was a far cry from a record low of 0.315 percent reached the day after the Bank of Japan announced its plan on April 4 to inject $1.4 trillion into the economy in less than two years by buying JGBs across the yield curve to pull the country out of deflation.

“Treasury yield rises have put upward pressure on JGB yields but at the same time the BOJ has changed its operations in the last two months and as a result volatility has come down gradually,” said Tomohisa Fujiki, interest rate strategist at BNP Paribas in Tokyo.

“So it’s not like a huge selloff in the last two months,” he said. “We have a big bond redemption today. That also should support the market.”

Yields began to rise after hitting the record low as banks and other investors sold JGBs, worried they were holding assets that would lose value as the promised inflation emerged.

The jump in JGB yields has had some central bank officials increasingly worried about price volatility, but BOJ Governor Haruhiko Kuroda has no intention of blinking first in the face- off with the markets over policy.

Both the 20- and 30-year yields climbed to a four-week high on Thursday. The 20-year yield gained 4 basis points to 1.730 percent, while the 30-year yield added 3 basis points to 1.860 percent.

The spread between the 10-year and 20-year JGB yields widened to 89.5 basis points to a six-week high.

Ten-year JGB futures eased 0.38 point to 142.58, holding above their 20-day moving average of 142.58 after trading as low as 142.37.

“The market reaction today tells us the U.S. tapering talk has very limited impact on the JGB market,” said Shogo Fujita, chief Japan bond strategist at Bank of America Merrill Lynch.

“It sill remains a very BOJ-driven market. It will continue to be this way going forward.”

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