Japan's 5-year bond yield rises even as BOJ offers loans to market

BY Reuters | ECONOMIC | 01/31/23 01:17 AM EST

TOKYO, Jan 31 (Reuters) - Yield on Japan's five-year government bond rose on Tuesday, even as the central bank offered loans with the same maturity to the market in a move to control the yield from rising.

The five-year yield rose 0.5 basis point to 0.180%, after the BOJ announced the outcome of the loan offer.

The Bank of Japan (BOJ) offered five-year loans against collateral to financial institutions, in its second such operation, receiving 3.264 trillion yen ($25.02 billion) worth of demand for loans worth 1 trillion yen.

The outcome was similar to the previous offer.

"The BOJ's funding has so far shown some effect but the effect will face as the bank repeats this," said Kazuhiko Sano, a strategist at Tokai Tokyo Securities.

The BOJ's five-year loan is part of its new tool to defend its ultra-rate policy. By providing cash to financial institutions against collateral, the central bank wants to encourage them to buy bonds so that rise in yields can be limited.

The 10-year JGB yield rose 1 basis point (bp) to 0.485%, as an auction for the bonds with the same maturity as the Ministry of Finance will conduct an auction for the 10-year bonds on Thursday.

The two-year JGB yield fell 1.5 bps to -0.025%.

The 20-year JGB yield fell 0.5 bp to 1.375% and

The 30-year JGB yield rose 1 bp to 1.600% and the 40-year JGB yield rose 1.5 bps to 1.860%.

Benchmark 10-year JGB futures fell 31 yen to 146.55, with a trading volume of 13,268 lots.

(Reporting by Junko Fujita; Editing by Rashmi Aich)

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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