Japan’s Two-Year Bond Sale Draws Stronger Demand on High Yields John Cheng Japan’s two-year government bond auction Wednesday saw stronger demand than the 12-month average as elevated yields underpinned buying. The bid-to-cover ratio was 3.89 compared with 2.97 at the previous sale, and a 12-month average of 3.75. In another sign of strong demand, the tail, or gap between average and lowest-accepted prices, was 0.014, compared with 0.034 last month.

Bond futures pared losses after the result. The sale produced a solid outcome thanks to high yields, said Miki Den, senior rates strategist at SMBC Nikko Securities. Markets are closely watching monetary policy in both Japan and the US, with the US employment report due later this week the key focus, he added.

The two-year yield, which is sensitive to monetary-policy expectations, fell 1.5 basis points to 1.945% on Wednesday. It touched 1.975% earlier this week, its highest level since 1995. The sale comes as speculation grows that the Bank of Japan could raise interest rates again as early as next month, following its decision to lift the benchmark rate to a 31-year high earlier this month.

That outlook was echoed by former BOJ monetary policy chief Kazuo Momma in an interview with Bloomberg. Overnight index swaps imply about a 23% chance of an October move, with a 25-basis-point increase almost fully priced by December. Meanwhile, Japanese and US policymakers have since last week ramped up their verbal interventions to halt the yen’s slide, helping to support sentiment.