JGB yields dip ahead of 10-year auction

BY Reuters | ECONOMIC | 07/04/22 01:39 AM EDT

By Sam Byford

July 4 (Reuters) - Japanese government bond yields eased on Monday, after U.S. Treasury yields dropped their most since March 2020 at the end of last week on expectations that the Federal Reserve will further hike interest rates to tackle soaring inflation.

The Japanese government is expected to auction about 2.7 trillion yen (about $20 billion) worth of 10-year JGBs on Tuesday.

The five-year yield fell 1 basis point to move into negative territory at -0.005%, while the 20-year JGB yield fell 0.5 basis point to 0.865%.

Other notes saw less movement. The two-year JGB yield was flat at -0.070% and the 10-year JGB yield remained at 0.215%, below the Japanese government's implied policy limit of 0.25%.

"The 10-year rate is gradually starting to move away from the yield curve control limit of 0.25%, but it's unlikely to fall much below 0.2% ahead of tomorrow's auction," said Gen Taniguchi, a market analyst at Mizuho Securities.

U.S. Federal government offices, stock and bond markets will be closed on Monday for the Independence Day holiday, which is likely to have slowed down the volume of trading in Asia.

Benchmark 10-year JGB futures rose 0.06 point to 148.96.

($1 = 135.1100 yen)

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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