JGB yields ease, futures rebound from worst plunge in 9 years

BY Reuters | TREASURY | 06/15/22 11:03 PM EDT

By Kevin Buckland

TOKYO, June 16 (Reuters) - Japanese government bond futures rebounded strongly on Thursday after their worst day in more than nine years, and cash bond yields mostly retreated, taking cues from U.S. Treasury yield declines after the Federal Reserve's 75 basis point rate hike.

However, the 10-year JGB yield clung stubbornly to 0.25%, the upper limit of the Bank of Japan's policy band, despite waves of additional central bank bond purchase announcements on Wednesday.

BOJ Governor Haruhiko Kuroda and his peers wrap up a two-day policy meeting on Friday, and the central bank chief has reiterated multiple times this month his commitment to ultra-easy stimulus.

However, speculators mounted a strong challenge to the BOJ's commitment to its yield curve controls on Wednesday, traders said, attacking futures and resulting in a wildly volatile session.

On Thursday, benchmark 10-year JGB futures had jumped 1.26 points to 146.84 as of 0215 GMT, undoing about two-thirds of the previous day's nearly 2-point tumble, which triggered a circuit breaker at the exchange.

"The market is now searching for a level where it can take a rest, but right ahead of an important policy decision by the BOJ, it's hard to expect much trading activity," said Ryutaro Kimura, fixed income strategist at Axa Investment Managers.

"After we see the BOJ outcome though, I think demand should come back quite strongly."

The 20-year JGB yield slid 5.5 basis points to 0.875%, and the 30-year JGB yield fell 4 basis points to 1.195%.

The five-year yield eased 2 basis points to 0.050%. Two-year JGBs had yet to change hands, last yielding -0.065%.

The 10-year Treasury yield ended the U.S. session at 3.2915% on Wednesday, down from the highest since April 2011 at 3.498% the previous day. That was after the Fed opted to raise rates by the most since 1994, but not more than markets had been anticipating.

Fed Chair Jerome Powell said an additional 50 or 75 basis points hike is likely in July, but added he doesn't expect 75 basis points increases to be common. (Reporting by Tokyo markets team; Editing by Lincoln Feast.)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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