JGB 10-year yields sink on Fed view, superlong yields up on poor auction

BY Reuters | TREASURY | 11/28/23 12:46 AM EST

By Kevin Buckland

TOKYO, Nov 28 (Reuters) - Yields on 10-year Japanese government bonds and most other tenors fell on Tuesday, tracking moves in U.S. Treasuries after poor housing data overnight boosted bets for near-term Federal Reserve rate cuts.

However, the longest-dated JGB yields climbed following a weak result at an auction of 40-year securities.

The 10-year JGB yield fell 1.5 basis points (bps) to 0.755% as of 0515 GMT, while the benchmark 10-year JGB futures rose 0.11 yen to 145.81.

Equivalent-maturity U.S. yields were little changed at around 4.4% after dropping almost 10 bps on Monday when Commerce Department figures showed a steeper-than-expected decline in new home sales.

Traders currently see about 50/50 odds for a first Fed cut in May, according to the CME Group's FedWatch tool.

At the same time, the 40-year JGB yield rose 2 bps to 1.955% after the finance ministry published results of the auction, which showed a measure of demand called the bid-to-cover ratio dropping to 2.21 from 2.95 at the previous sale in July.

Investors were closely watching the sale because it was the last chance to buy the 40-year bond this year, said Shoki Omori, chief Japan desk strategist at Mizuho Securities, adding that it was a particularly important litmus test of foreign demand as overseas investors close their books in December.

The superlong sector was already underperforming the rest of the curve because investors speculate the BOJ will cut the number of purchases for the sector when it releases its updated operations schedule on Thursday, Omori said.

The 30-year JGB yield added 1 bp to 1.710%.

The 20-year yield, however, eased 0.5 bp to 1.500%, after earlier ticking up to 1.510%.

The five-year yield declined 2 bps to 0.325%, and the two-year yield lost 0.5 bp to 0.055%. (Reporting by Kevin Buckland; Editing by Sohini Goswami)

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.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.