Japan’s 10-year yield flat; biggest BOJ bond-buying in 3 months seen


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TOKYO/SINGAPORE — Japan’s 10-year government bond yields stayed at the upper limit of the Bank of Japan’s policy band despite a sell-off ahead of its policy meeting this week, as it supported the yield with its largest bond-buying in three months.

Yields on super-long and so-called cheapest-to-deliver 10-year bonds tracked U.S. Treasury yields higher in the run up to expected rate hike by the Federal Reserve.

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The benchmark 10-year yield was at 0.250%, the upper limit of the BOJ’s target, as the central bank bought 836.1 billion yen worth of bonds with the same maturity, the largest amount since June 20.

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“It is a massive number,” said Ales Koutny, a bond portfolio manager at Janus Henderson Investors in London.

“While operationally it doesn’t change their behavior, we may see some political pressure due to … the massive amounts still being used to hold the cap.”

Unlike its peers, the Bank of Japan has been determined to keep the borrowing costs low to support the economy. Under the yield curve control, the central bank guides the 10-year yield around 0% and allows it to move 25 basis points on either side of zero.

The bank has been offering to buy unlimited amounts of 10-year bonds to keep the yield below the target every day since April.

This bucks the trend overseas where the central banks tighten their policy to contain inflation.

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Overnight, benchmark 10-year U.S. Treasury yields jumped at their highest since April 2011 and the two-year yields hit its highest since November 2007 ahead of the expected hefty rate hike the Federal Reserve.

Japan’s super-long yields tracked the U.S. peers, with the 20-year JGB yield rising 1 basis point to 0.960% and the 30-year JGB yield climbing2 basis points to 1.305%.

The 40-year JGB yield rose 2.5 basis points to 1.460%.

“The upward pressure on yields have gotten stronger with a surge in U.S. yields,” said Takayuki Miyajima, senior economist at Sony Financial Group.

The yield of so-called cheapest-to-deliver 10-year bonds also rose to as high as 0.216%, its highest since June 30. (Reporting by Junko Fujita in Tokyo and Tom Westbrook in Singapore)

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