Japan's 10-year government bond auction on Thursday drew slightly weaker demand than its 12-month average, reflecting softer investor appetite after a recent decline in yields. The bid-to-cover ratio was 3.21, down from 3.76 at the previous sale and below the 12-month average of 3.24. The tail widened to 0.25 from 0.02 last month, and bond futures erased some gains after the result.
Ryutaro Kimura, senior bond strategist at BNP Paribas Asset Management, said the outcome suggests investors "find yields in the low 2.7% range unattractive, especially given the likelihood of further Bank of Japan rate hikes toward the neutral rate." He cautioned that yields could reverse and trend higher if news proves less negative than feared.
The benchmark 10-year yield has fallen to 2.755% from a peak of 3.115% in late September, as signs of recovering domestic demand and overseas inflows supported longer-dated Japanese government bonds. Treasury yields also fell after Democrats won control of both chambers of Congress in the US midterm elections, easing concerns over fiscal expansion. Oil prices declined on growing hopes for an end to the Iran war.
The Bank of Japan kept rates steady at its October meeting. Governor Kazuo Ueda said underlying inflation had reached levels consistent with the central bank's 2% target while signaling openness to further hikes, including at the December meeting. Overnight index swaps imply a 79% chance of a rate hike by December, with a 25-basis-point increase fully priced by January.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing