JGB futures rise as Fed's Powell suggests rate hike slowdown

BY Reuters | ECONOMIC | 12/01/22 01:08 AM EST

By Junko Fujita

TOKYO, Dec 1 (Reuters) - Japan's government bond futures rose to a one-week high on Thursday after Federal Reserve Chair Jerome Powell said the U.S. central bank could slow the pace of rate hikes as soon as this month.

Benchmark 10-year JGB futures rose 0.36 yen to 149.08, hitting its highest since Nov. 25, with a trading volume of 14,120 lots.

Moves of yields on cash bonds were limited as traders braced for a possible change in the Bank of Japan's ultra-low-rate policy.

"Futures took cues from overseas elements, while cash bonds traded on domestic issues," said Masayuki Koguchi, general manager at the fixed income investment division of Mitsubishi UFJ Kokusai Asset Management.

"Speculation that the central bank could tweak its yield curve control (YCC) policy seemed to have emerged again after Tokyo's price data was out last week, which has made investors shy away from buying bonds."

Data released last week showed core consumer prices in Japan's capital, a leading indicator of nationwide trends, rose at their fastest annual pace in 40 years in November and exceeded the central bank's 2% target for a sixth straight month, signalling broadening inflationary pressure.

The 10-year JGB yield, which the BOJ targets to control to defend its ultra-low policy, was flat at 0.250% despite a firm outcome at an auction of bonds with the same maturity.

The auction received bids worth 6.03 times the amount available, higher than a bid-cover ratio of 5.24 at the previous auction. The tail, or the gap between the lowest and the average price, was zero, suggesting a firm outcome.

The 20-year JGB yield fell 2 basis points (bps) to 1.105% and the 30-year JGB yield fell 0.5 bps to 1.505%.

The 40-year JGB yield rose 0.5 bps to 1.765%.

The five-year yield fell 1 bps to 0.100% and the two-year JGB yield was flat at -0.030%. (Additional reporting by Tokyo market team; Editing by Savio D'Souza)

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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