JGB yields slide as investors reassess prospects of rate hike

By Brigid Riley

TOKYO, Dec 4 (Reuters) - Japanese government bond (JGB) yields fell on Wednesday after media reports raised doubts about market expectations that the Bank of Japan (BOJ) would hike interest rates this month.

Analysts said investors were reacting to a couple of media reports that suggested the possibility that the BOJ may skip a rate hike at its Dec. 18-19 monetary policy meeting.

The 10-year JGB yield touched a three-week low of 1.04% before settling down 2.5 basis points (bps) at 1.05%. Benchmark 10-year JGB futures rose 0.29 points to 143.16 yen.

Those reports were the "catalyst" for a rebound in JGB buying, said Keisuke Tsuruta, a senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities.

"Expectations that had been factored in have receded in response to the articles, and there has been significant buying, particularly in the medium-term zone," he said.

The two-year JGB yield slid 3 bps to 0.58%.

The five-year yield was last down 2.5 bps at 0.715%.

The two-year JGB yield, which more closely corresponds to monetary policy expectations, rose to a 16-year high of 0.625% on Monday after an interview with BOJ Governor Kazuo Ueda published in the Nikkei newspaper over the weekend.

Ueda said in the interview that the timing of the next interest rate hike was "approaching," reinforcing growing bets that the BOJ will raise rates from the current 0.25% as soon as its next meeting.

Media reports published on Wednesday suggested that Japan's central bank may take a more cautious stance this month.

Markets currently saw a 42% chance of a rate increase this month, down from around 60% on Monday.

The 20-year JGB yield and 30-year JGB yield both fell 1.5 bps to 1.855% and 2.275%, respectively.

The 40-year JGB yield was flat at 2.64%.

(Reporting by Brigid Riley; Editing by Sherry Jacob-Phillips)