JGB yields track US peers higher as Fed rate cut hopes fade

BY Reuters | ECONOMIC | 04/17/24 03:20 AM EDT

TOKYO, April 17 (Reuters) - Japanese government bond yields rose on Wednesday, tracking U.S. Treasury yields higher, as Federal Reserve officials suggested that U.S. interest rates were likely to stay higher for longer.

The 10-year JGB yield rose 2 basis points (bps) to 0.885%, its highest level since Nov. 13.

The five-year yield rose 0.5 basis point to 0.49%, a 13-year high scaled in the previous session.

"There was an expectation that a delay in Fed rate cuts could make it easier for the Bank of Japan to raise rates," said Katsutoshi Inadome, a senior strategist at Sumitomo Mitsui Trust Asset Management.

Fed Chair Jerome Powell said on Tuesday that the central bank may need to keep rates higher for longer than previously thought, helping the U.S. 10-year Treasury yields climb to five-month highs.

In Japan, the market expects the BOJ to raise rates again sometime this year. The policy-sensitive two-year JGB yield rose 0.5 bp to 0.28%, its highest since November 2009.

The yen's weakness has also raised expectations for a rate hike in Japan as an increase in imported goods could raise prices, said Inadome.

The yen has been stuck at levels last seen in 1990 on the back of the dollar's strength.

"The market will eye how the weak yen and rising commodity prices would affect the BOJ's policy at its meeting later this month," said Naoya Hasegawa, chief bond strategist at Okasan Securities.

The BOJ is holding a two-day meeting starting on April 25.

The 20-year JGB yield rose 1.5 bps to 1.660% and the 30-year JGB yield rose 1.5 bps to 1.940%. (Reporting by Junko Fujita; Editing by Subhranshu Sahu)

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.